Leasing Market Predictions for Los Angeles, San Francisco & Seattle
Wednesday, December 8, 2021
A panel of commercial real estate leasing experts shared their predictions and updates for the western region’s major markets on the 14th Annual Top View. Panelists included Jeffrey Welch, executive vice president of CBRE; Christopher T. Roeder, Executive Managing Director of JLL; David Sternberg, executive vice president of Northern California & Mountain Regions, Brookfield Properties; and David Abbot, executive vice president of Colliers. The panel was moderated by Allen Matkins partner Tony Natsis.
The panelists agreed that getting employees back to work is currently the top priority – an opinion shared by tenants and property owners. Overall, the outlook for the leasing market remains positive.
THE ANGEL
Los Angeles had the second lowest occupancy in the country during the COVID-19 pandemic. In the huge 235 million square foot market, rents have risen in five of the last six quarters, despite the fact that the city has been closed for the past 18 months and vacancy rates are up to 40%. Rent increases are driven by 12 million square feet of new space created by the technology industry.
There were some activities in Culver City, Burbank and Hollywood, mostly related to the booming techtainment industry in the area. The demand for entertainment has remained high, which increases the need for sound stages and the like.
In contrast, the market in downtown Los Angeles has stagnated as the companies that traditionally occupy these spaces have stayed at home. These finance, real estate, and insurance companies continue to do well, but there is speculation that they will occupy less space after the pandemic ends.
In all markets in the Los Angeles area, the concessions are at an all-time high. There is no sign that these concessions or rental rates will fall in any of the less popular areas. In the future, landlords and tenants will be looking for flexibility and efficiency. Flexibility is key as tenants may not know exactly what they need until they are all back in the office and can see how they want to use their space.
SAN FRANCISCO
San Francisco was badly hit by the COVID-19 pandemic when the city closed. The occupancy rate and the number of passengers in local public transport were the lowest in the country. The vacancy rate reached 20%. With a high density of office space in the city center, commercial activity in the city appeared flat. Behind the scenes, business from home office and living room continued. Tremendous levels of wealth continued to be created, unemployment rates remained low, and businesses in the region continued to recruit.
The best subleases in the area are moving again and many of the current subleases expire in the next three years. One of the priorities in the city is getting employees back to work, and that requires employees to feel safe and comfortable outside of their home. When technology companies get back to work, the abundant supply of sublet space should dissolve.
Highlights in the Bay Area include 5M, a mixed-use development in downtown San Francisco. The building will be 100% rented before the end of 2021 and tours have increased significantly as people have the opportunity to physically walk through the facility and see the health and wellness attributes. Progress on Pier 70 continues and much of the infrastructure has been completed so people can enter the site.
SEATTLE
The Seattle rental market has seen rising demand for sub-tenants and new tenants in the past two to three months. In particular, some sublet space is being withdrawn from the market, as landlords assume that the companies will be back to work in the coming months. Key players in this area include technology companies as well as life sciences companies that are gaining momentum.
Bellevue was a ray of hope during the pandemic due to Amazon’s expansion in the region. However, the company has been a disruptor in this area. Much of the current downtown construction is related to Amazon projects, and the company has also had incentives for tenants to move ahead of their leases with plans to take over that space.
In the South Lake Union area, projects that were originally built as office space have been focused on the life sciences. These include Cascadian and Dexter Yard, now targeting technology and life science companies. This trend could continue and reduce office space in the area.
The Puget Sound area should see a tough year end. The change in management at Amazon and the potential choice of an enterprising mayor are factors that could affect growth in the region.
© 2010-2021 Allen Matkins Leak Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 342
