Is 15% the new 10% for Westside Office Vacancies?

Rents on the Westside are climbing.  Landlords and their brokers have declared good times,  yet both CBRE and Newmark report vacancies at 12.7%for  the Westside and 15% for Los Angeles at the end of the first quarter.   Ten percent used to demarcate a landlord from tenant market.  Only once vacancies dipped below 10%–landlords declared good times.  The Westside’s occupancy has increased now for 4 straight years.   After the dot com bust in the early 2000’s, with only three years of rising occupancy, the Westside hit a peak of 93.6% occupancy and a low of a 6.4% vacancy. San Francisco has a vacancy rate of 5% at the end of the first quarter 2015.   In the 90’s,  Westside office vacancies dipped to 7%.  Only in the 1980s did vacancy not break below the magic 10% due to massive new construction.

So why are we so bullish with vacancies still over 10% The answer may involve the distribution of  vacancies.  Some areas of much hotter than areas.  For examples, rents in West Los Angeles are still under or near $3 per square foot while rents in Santa  Monica are over $4 per square foot. Creative office is now much hotter than conventional offices.   Industry Partners reports the vacancy for creative office at only 8.4%  Large blocks of space are much harder to come by than small spaces.  Offices with 4 per 1000 parking are much more dear than those with only 2 per 1000 parking in today’s world of 5 employees per 1000 square feet. .    As with the rest of the economy,  this expansion is not shared equally.

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