Southern California Commercial Report
by Robert Kleinhenz, Ph.D., Deputy Chief Economist

According to RealFacts, a firm that gathers statistics on the multifamily housing market, the vacancy rate for apartments in Los Angeles County was 5.1 percent in the first quarter of 2004, up from 4.0 percent during the prior quarter and unchanged from the first quarter of 2003. The Orange County vacancy rate was 5.3 percent in the first quarter of 2004 compared to 4.6 percent in the fourth quarter of 2003 and up slightly from a year ago when the rate was 5.1 percent. The rate in the Inland Empire was 4.7 percent, up from 3.9 percent in the previous quarter but down from 6.0 percent a year ago. Rental rates increased steadily in all three market areas in the first quarter of this year, with the Los Angeles county market reporting a 3.9 annual percent increase to $1,355 per month, Orange County experiencing a 3.2 percent increase to $1,284 per month, and the Inland Empire showing a 6.2 percent increase to $960 per month.

Office sector vacancy rates have generally improved, according to statistics furnished to C.A.R. by the CoStar Group. The vacancy rate for Los Angeles County was 10.4 percent in the first quarter of 2004, down from 11.5 percent in the prior quarter and unchanged from a year ago. The vacancy rate for Orange County was 10.0 percent in the first quarter of this year, falling slightly from 10.4 percent in the last quarter of 2004 and improving by nearly one percentage point from 10.9 percent a year ago. The Inland Empire saw an increase from 7.9 percent in the fourth quarter of 2003 to 8.4 percent in early 2004, while improving from 8.8 percent a year ago. Lease rates have stabilized in recent quarters, with the Los Angeles county market at $1.97 per square foot, the Orange County market at $1.90 per square foot, and the Inland Empire at an all-time high of $1.53 per square foot.

In the industrial sector, both vacancy rates and lease rates have stabilized or improved in recent quarters. The vacancy rate for Los Angeles County was 5.6 percent in the first quarter of 2004, showing a 1 percent improvement from the prior quarter and down 1 ½ percent from a year earlier. The Orange County market showed an improvement to 4.9 percent in the first quarter compared to 5.9 percent during the prior quarter and 6.0 percent a year ago. Lease rates now stand at $.35 per square foot in the Los Angeles county market on a triple net lease, $.52 per square foot in Orange County, and $.36 per square foot in the Inland Empire.

Labor market reports over the past two months suggest that the economy is finally creating jobs. The national economy has created roughly 300,000 jobs in each of the last two months, and the national unemployment rate fell to 5.6 percent in April 2004. The unemployment rate in California fell to 6.2 percent in April 2004, while creating 78,800 jobs compared to a year earlier. While this represents only a half-percent increase, this was the largest such increase in nearly 3 years. As the economy moves from a jobless recovery mode to a more expansionary, job-creating mode, the commercial market outlook should improve in the coming months.

If you would like to receive more information on the commercial markets, please notify the C.A.R. Research and Economics via email at research@car.org.

Source: California Association of Realtors

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