The late summer lull in the Los Angeles office real estate market offers options for nearly all office investors. Savvy entrepreneurs are reaching for value-added strategies, while distressed office property opportunities continue to evaporate. Marcus & Millichap’s Third Quarter Office Research Report reasons that buyers are appreciating assets with breakeven revenue on current rent rolls and the potential for a 10% return, while loan underwriters remain squarely focused on current operating revenues.
The Third Quarter Office Research Report also offers the following highlights.
■ During the most recent 12-month period, deal flow in the Westside Cities climbed by 28%, as activity in the Class A sector more than doubled. The average square feet per transaction rose by nearly 50%. The median sales price was $398 per square foot, representing a year-over-year price increase of 4%.
■ Healthy improvement in operations, along with rising prices, put downward pressure on cap rates. During the past year, average cap rates were in the low-6% range, down 30 basis points from the prior period.
Surprisingly, office rents in L.A.’s Westside Cities are more than 35% above the county’s other regions…
■ At midyear, average asking rents for available space were $39.69 per square foot. By year-end 2013, average asking rents in the Westside Cities will reach $40.36 per square foot, an annual climb of 2.4%.
■ Rents for available Class A space were $41.78 per square foot in the second quarter, a 1.6% gain from last year. Class B/C asking rents were quoted at $35.53 per square foot in the second quarter, up 3.6% from last year’s midpoint.
High prices in the Westside Cities encourages buyers to utilize leverage when acquiring properties. As a result, rising interest rates could have a more pronounced impact on sales in the region. This is a benefit to the owner-users marketplace, who are taking advantage of SBA loans with interest rates under 5%.
For more information please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – email@example.com or 310.392.1211, and let us move forward together.
Bravo to us! California rates 6th on the list of the states with the fastest growing economies. Countrywide, gross domestic product (GDP) grew by 2.5% in 2012 after growing 1.6% in 2011. This is the most the economy has grown since 2006. Bravo to us! Nationally, manufacturing, trade and the finance and insurance industry made some of the biggest contributions to growth.
California, has been one of the most depressed economies in the country for years, has seen growth in its telecom, tech, financial markets and banks. But life is getting easier. Here is an update on our progress courtesy of 24/7 Wall St….
> GDP growth: 3.5% (tied for 5th highest)
> Real 2012 GDP: $1.75 trillion (the largest)
> 1-yr. population change: 0.95% (18th highest)
> 1-yr. employment growth: 1.99% (7th highest)
California has the largest economy of any state in the nation, at $1.75 trillion in 2012. The state also was among the most damaged by the housing crisis during the Great Recession. In 2009, California’s economy contracted more than 5%, and grew only 0.3% and 1.2% in 2010 and 2011, respectively. According to the Federal Housing Finance Agency, as of the first quarter of 2013, home prices in the state were down by more than 16% in the past five years, compared to 9% for the nation overall. While still high, California’s unemployment rate has declined in recent years, from 12.4% in 2010 to 10.5% in 2012. Also, through a mixture of tax hikes and spending cuts, California recently recorded a budget surplus. Just three years earlier, the state had faced a deficit of nearly $60 billion.
North Dakota wins the 2012 award with > GDP growth: 13.4%.
Read more: States with the Fastest Growing Economies – 24/7 Wall St. http://247wallst.com/2013/06/12/states-with-the-fastest-growing-economies/#ixzz2WCl6TxRK
by Jodi Summers
The winners of this competition are:
Gensler, Los Angeles, Calif.
Hickok Cole Architects, Washington, D.C.
The Miller Hull Partnership, Seattle, Wash.
Pickard Chilton, New Haven, Conn.
The Office Building of the Future submissions detailed each firm’s vision and concept plan for utilization trends, sustainability and new building technologies. Each company submitted site plan views and perspective sketches that highlighted future building features, materials, technology and trends, and hard cost budget estimates.
The winners identified several common themes that will drive change in what is considered an “office” in 2020. The biggest change is from personal technology, employees more capable of completing service and information-based tasks wherever they choose. The advantage of the office of the future is that it will provide an array of flexible workspaces.
Gensler – Los Angeles’ own Gensler Architecture has the vision of a “hackable” building which they define as “an existing structure that has been updated beyond recognition and that incorporates a diverse mix of multiple uses within a building.” According to Gensler, “Hacking is a culture, not a technology. We believe it represents the most dynamic, pragmatic and sustainable vision for the future of office buildings and the future of work.”
Hickok Cole Architects – According to Hickok Cole Architects’ winning submission, “No one is tied to a desk and there are ample opportunities for diverse work environments, such as lounge work areas, communal tables, benching areas, hive configurations, individual work stations, and shared office amenities.”
The Miller Hull Partnership – The Miller Hull Partnership’s b(HIVE) concept represents “a building that becomes a part of an agile, adaptable business machine, somewhere between a hands-on community and the raw edge of technology.” Their vision includes 1) flexible, open space that is fast and inexpensive to build; 2) collaboration space that is carefully customized for tenants and easy to reconfigure; and 3) retail space on the ground floor with a diverse mix of uses.
Pickard Chilton – Pickard Chilton’s approach identifies three distinct principles. 1) Human qualities: A healthy workplace that is conducive to the productivity and well-being of employees, with qualities such as abundant natural light, access to fresh air, customizable work areas and greater collaboration spaces; 2) Business objectives: Innovative design and construction, efficient floor plates and multipurpose spaces support the owner’s business objectives; 3) Sustainability: The office building of the future incorporates an advanced system monitor to track, measure and display data about building performance to allow potential tenants to make informed decisions about their workplace and enable a high-performance building to stand out within a highly completive real estate market.
by Jodi Summers
Corner offices and cubicles are so last century. The new millennium workspace is versatile, with options for focused, individual work and also fully equipped to support collaborative groups, team projects and social interaction.
NAIOP, the Commercial Real Estate Development Association, recently held the Office Building of the Future design competition. The winning designers identified several common themes that could drive changes in how we “office” in the future. The biggest driver for change is personal technology, which has untethered workers from by providing the capability of completing service and information-based tasks from wherever they choose. An individual with a laptop can work from home, or at a wi-fi equipped location, or any variety of locations along the road.
The company of the future doesn’t have one grand office rather they have several smaller hub locations, closer to their workforce and rapid transit. This will result in a reduction of the average size of any individual office location, but shouldn’t impact demand.
“Office design is changing rapidly and our industry needs to position itself ahead of the curve,” offers Thomas J. Bisacquino, NAIOP president and chief executive officer. “This unique competition opened the door to thinking about what an ‘office’ may look like in the very near future.”
On the green side, the office building of the future should also be more affordable to build and operate, thanks to advances and cost reductions in construction materials and systems. Sustainability will become financially viable. Net-zero buildings will meet the demands of tenants as well as the improved building performance sought by building owners and developers.
Edited by Jodi Summers
The National Trust for Historic Preservation defines rehabilitate as: “To repair a structure and make it usable again while preserving those portions or features of the property that are historically and culturally significant.”
To successfully rehabilitate a historic building, they are offering us 10 basic principles to keep in mind when undertaking a rehabilitation project.
Of course, every project is different and will have different needs and solutions. But this handy reference guide is a great way to get you started.
by Jodi Summers
2013 is indeed a happy new year for office real estate. Let us begin the drum roll of good news by letting you know that office vacancy rates are dropping…and that means higher cap rates and better sales prices are in the future. What’s more, the next wave of office architecture is up for your consideration.
Recent job creation increased absorption pushed down vacancy rates in the office, helped by the limited new supply of space. (Above and beyond the 400,000 sq.ft. of new office space Office in the newly opened Red Building @ Pacific Design Center.)
As our economy creeps back to life, 2012 saw U.S. office vacancies drop to their lowest level in almost three years. Major contributing factors are the demand from energy and technology companies combined with a dearth of construction.
The National Association of Realtors Commercial Real Estate Outlook Vacancy rates in the office sector are projected to fall from an estimated 16.7% in 4Q 2012 to 15.7% in the 4Q 2013. The markets with the lowest office vacancy rates presently (in the fourth quarter) are Washington, D.C., with a vacancy rate of 9.6%; New York City, at 10.1%.
The Los Angeles vacancy rate is estimated to be 12.5%.
“What these findings suggest is that, in general, the industry is moving forward bit by bit. Nothing indicates a quick turnaround for commercial real estate, but it is improving,” observes Stephen Blank, the senior resident fellow for real estate finance at the Urban Land Institute. “Those who are patient and willing to rethink their expectations and adapt to market realities are the most likely to come out ahead next year. Investors must keep in mind recent progress made in the industry as they prepare for a slow but steady recovery. “
Given the lackluster yields of securities, Sandy Paul, national research director for Delta Associates contends that betters want a winning horse, and their stallion is commercial real estate. “Investors are looking to place capital in assets that are income-producing and have the benefit of tangible value,” Paul maintains. “Investors also may be concerned about potential volatility ahead, such as was seen during the October 2008 financial crisis and the August 2011 downgrading of US debt. Domestic commercial real estate benefits from its traditional status as a safe haven during periods of uncertainty.”
The Los Angeles office real estate recovery will advance in 2013, making modest gains in leasing, rents, and pricing.
In Los Angeles, according to Loopnet, lease rates for office properties close out the year at $22.12 per square foot…up 0.7% from 2012. (And up 0.7% from 2011, as well.) As a point of perspective, July 2008 was the last lease rate peak, with asking rents averaging $27.01 per square foot. The lowest asking lease rate in the past three years was $21.87 set in February 2012. We are currently 4.5% off the zenith.
Please consider….there is new wave in office real estate rolling in…major tenants like Yahoo, Google and Red Bull, among so many others…are willingly pay high rents in return for more efficient design layouts and lower operating costs in LEED-rated, green projects. The EZ lease off of the future features open floor plans characterized by a lack of individual offices with walls and doors. More on this in the next blog…
We’re here to help you with your commercial and investment property needs. Please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – firstname.lastname@example.org or 310.392.1211, and let us move forward together.
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