Southern California offices slow to fill in second quarter

Southern California’s office market improved only slightly for landlords in the second quarter, even though many companies have been hiring new workers as the economy has continued to mend.

In a few hot spots, such as the Westside of Los Angeles County and the Irvine Spectrum, vacancy fell and some landlords were able to significantly raise their rents, but the regional office market overall improved tepidly from a year earlier, according to real estate brokerage Cushman & Wakefield.

A big reason buildings have been slow to fill is that some companies are still giving up offices they agreed to rent before the economic downturn forced layoffs. Other employers are packing more workers into less space even though their firms are hiring, real estate experts said.

Many white-collar businesses such as law firms and financial consulting firms make smaller commitments to office space when they renew leases for five or more years, said Hans Mumper, a managing director at real estate brokerage Colliers International.

“The trend of downsizing continues, and I think that will happen through the end of the year,� Mumper said.

It will probably take at least that long for the office market to stabilize as the last of the leases signed before the recession come up for renewal, he said. After that, “maybe people will start up-sizing again.�

Office vacancy in Los Angeles, Orange, Riverside and San Bernardino counties was 17.6% at the end of the second quarter, Cushman & Wakefield said, down from 18.5% a year earlier. Landlords asked for average rents of $2.33 per square foot per month, an increase of only 3 cents from the same period last year.

“The statistics are pretty flat or show minor improvement, but the general economy is improving and beginning to go our way,� said Joe Vargas, regional manager of Cushman & Wakefield.

The overall supply of office space available for rent will continue to shrink, he said, but at a slow pace. So much empty space will make it difficult for most landlords to aggressively raise rents.

“We’ll see some rent growth, but not dramatic rent growth,� Vargas said.

Orange County businesses bulking up their employee rosters include technology, life sciences and education companies, he said. Some of the strongest growth in Los Angeles County is happening among entertainment, technology and computer gaming firms.

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