Rents rise for the Los Angeles office tenants despite an increase in the vacancy rate

The owners of the Wilshire Grand, a recently completed skyscraper in downtown L.A., are asking about $4.25 a square foot per month for office space. (Mel Melcon / Los Angeles Times)

Premium new office space coming onto the rental market is increasing average rents in Los Angeles County — even as it has driven up the vacancy rate.

Typically, a supply increase of available offices puts downward pressure on rents. But the recently completed Wilshire Grand in downtown Los Angeles and the Pen Factory in Santa Monica are lifting average rents sought by landlords, according to market observers.

“What’s coming online is premium space commanding premium dollars.”

Rents at the Pen Factory, a 1950s Papermate pen manufacturing plant that was turned into offices this year, are close to $5.00 per square foot per month.

The owners of Wilshire Grand, a recently completed hotel and office skyscraper, are asking about $4.25 a foot.

The overall average rent sought by Los Angeles office property owners in the third quarter ended Sept. 30 was $3.32 per square foot per month, up from $3.08 in the same period a year ago and $3.19 in the previous quarter.

Developers emboldened by the region’s sustained economic upturn have completed about 1.7 million square feet of new office space this year, the Los Angeles-based brokerage said.

That pushed the overall third-quarter vacancy rate in Los Angeles County to 14.4%, up from 13.3% in the same period a year earlier and 13.7% in the previous quarter.

Santa Monica, where property owners are asking for more than $6.00 a foot, commands the highest price in the Greater Los Angles area. Downtown Los Angeles is a comparative bargain at $3.47 a foot.

The local office market will continue to strengthen for the next year to 18 months presuming the economy remains strong.

“Even though we have reached full employment and leasing activity is not as robust as it was at its height in 2014 “the market is not weakening.”