The commercial real estate boom in Los Angeles which began in the latter part of 2014 is welcomed by landlords with open arms as it means higher office rents, amidst tight supply, reports Los Angeles Times.
Petra Durnin, Cushman & Wakefield managing director of research for real estate brokerage, said that the office market is expected to "tighten up" some more and increase current office rents. "Looking forward, 2015 is going to be a very healthy year," Durnin told LA Times.
Just how tight is the current supply? The LA county's average available office inventory was 16 percent for 2015 Q1, lower compared to the recorded vacancy of 18 percent in 2014Q1, says Cushman & Wakefield. With the low supply, landlords reportedly raised their rents by 6% or almost $2.75 per sq.ft. a month.
But the interesting finding is that many submarkets are really tight, having lower than 10 percent availability. "We have a dozen submarkets below 10% vacancy now. That indicates the market strength we have been feeling is a reality," Durnin said.
Although few developments are reportedly still on the rise in L.A., with the tight market in the commercial estate, construction may eventually follow for investors who would want to take advantage of this trend.
According to iReach, some investors like Brian Fielding of Fielding Investments prefer investing in commercial real estate rather than residential properties. Fielding explained the several benefits in investing in commercial market over residential. It is easier to maintain a commercial property by just hiring a team to manage the whole property with multiple tenants, says Fielding.
For Fielding, commercial loans are more flexible than residential loans, with the owners obtaining low mortgage rates based on the creditworthiness of their tenants. For instance, if you are a landlord of a well-established business, lenders will consider you as a potential borrower. Fielding told iReach that it is easier to evaluate a commercial property by more or less basing on just the "Net Operating Income or gross income after operating costs, by the CAP rate, or the desired return on the purchase."
In a report on The Dallas Morning News, the commercial estate boom may still continue through 2017, citing a Washington, DC-based Urban Land Institute survey. Hopefully, more investors will create new developments to have a healthy balance between supply and demand in the commercial estate market.
Also, even though there's a commercial estate boom, builders should also not forget there is stil shortage in the housing market which must not be overlooked in these times. In L.A., the median home price is $534,600 about thrice the average median price in the nation, notes Zillow.
