People are always asking me “how is the real estate market these days?” Well, I explain, that depends on whether you are looking at residential or commercial; after we narrow it down to commercial, are they asking about investment or leasing? Zooming in on leasing (which is my area of expertise), there are clearly different answers to their question depending on the type of real estate (retail, office or industrial) and where you are looking. So here is a quick overview:
Office – Silicon Beach continues to be a submarket in great demand with low vacancy rates and high rents. The technology economy is driving most office markets (that is, growing the most new companies) and is positively impacting many other submarkets including Culver City, El Segundo, and Hollywood. Downtown L.A. is seeing some of these benefits, too; however, except for some pockets like the Arts District, downtown is still vexed by a relatively high vacancy rate (around 17%). The best office deals can be found here. The Tri-Cities submarket (Burbank-Pasadena-Glendale) are in a healthy state of equilibrium with rents growing modestly year over year.
Industrial – This market segment has never been tighter. Vacancy in Los Angeles and Orange Counties is hovering around 2%. Demand continues to be greater than the ability to build new buildings due to the shortage of available land priced appropriately for industrial development. And yes, rents have gone up commensurately, on average 100% from rental rates about 5-7 years ago.
Retail – the reports of the collapse of bricks and mortar retail have been greatly exaggerated, to paraphrase Mark Twain. What is changing however is what retail segments are growing and which are shrinking. Hospitality (food and beverage), entertainment, and personal services are expanding. Apparel and other merchandise is ebbing. The toughest thing to figure out is whether the ultra-high rents in the most prestigious neighborhoods like Beverly Hills, Brentwood and West Hollywood are really supportable. Paying $15.00 per square foot per month on Canon Drive in Beverly Hills is not a guaranty of success! In retail more than in the other market segments, property owners have visions of grandeur and are asking rents higher than what is sustainable for tenants. Nowhere is this more apparent than in the reinvigorated neighborhoods of downtown L.A.
In summary, the strong economy is pushing up demand and rents in its wake.But there are still good deals out there if you know where to look.A good commercial real estate broker can provide the guidance essential to making a smart decision.I am available for a little free advice