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LA County Office Report – Sales Volume Hits 10-Year High in 2016

| Commercial Real Estate News, Market Reports, Office| Views: 1712

Executive summary:

For the Los Angeles office real estate market, 2016 was the most active year of the past decade. Solid job gains are driving demand across all asset classes, as L.A. County unemployment dropped to 4.7% in December 2016, its lowest post-recession rate. High demand and increased leasing activity in the region are driving prices upward, which in turn attracts investor interest and propels office sales activity. As a result, L.A.’s office market reached new heights in 2016–the highest in the last 10 years.

Our CommercialCafe and Yardi Matrix joint study analyzed commercial office transactions of more than $5 million for office buildings of over 50,000 square feet, from 2012 to 2016, based on Yardi Matrix sales.

Y-o-Y Sales Volume Climbs to 10-Year High, Reaches $9.6B

A total of 88 office deals closed in L.A. County last year for $9.6 billion—a new 10-year record and nearly double the previous year’s level. After experiencing a slight cool-off in 2015, the market bounced back strong in 2016, and office investment reached new highs—48% higher than in 2014. Nearly 20 million square feet of office space changed hands in 2016, a 25% increase year-over-year. By comparison, a total of 107 properties totaling roughly 16 million square feet traded in 2015.

Average Price per Square Foot Hits Highest Level in 5 Years

Fueled by strong job growth and intense leasing activity, Los Angeles has become an increasingly attractive destination for office investment over the years, with occupancy rates climbing to 89.3% in Q4 2016, the highest level since 2008. As demand continues to rise, driven largely by media and entertainment companies, so do the prices: the average price per square foot for office assets sold in the county reached $430 in 2016—a 39% increase year-over-year and more than twice the amount recorded in 2012 or 2014.

The highest per-square-foot price recorded in 2016 was also the highest ever paid in Santa Monica: 2700 Colorado Ave. was acquired by software giant Oracle in November for $368 million. After experiencing a slowdown in activity following the recession, and losing many tenants to Playa Vista’s increasingly popular tech scene, Santa Monica’s office market seems to be in recovery mode. More and more startups and media companies are signing leases in the area, including Oracle, AwesomenessTV, Hulu and Beachbody, according to TheRealDeal. Notable office projects in the works include the 326,000-square-foot Plaza at Santa Monica, the 191,982-square-foot Santa Monica Gateway, and Clarion Partners’ 222,200-square-foot Pen Factory adaptive reuse project, as per Yardi Matrix data. The market is poised to further gain momentum in the upcoming years, now that L.A. County Metro’s new Expo Line connecting Santa Monica and Downtown Los Angeles is operational.

Blackstone, Douglas Emmett: Most Active Players on the Market

The most active buyer of the past year was a joint venture between Douglas Emmett and the Qatar Investment Authority (QIA), which closed two major transactions for a total of over $1.5 billion—the $1.3 billion acquisition of 10880, 10940 and 10960 Wilshire Blvd. and 1100 Glendon Ave., and the $225 million purchase of 12100 Wilshire Blvd. Douglas Emmett also ventured on its own on Wilshire Boulevard in 2016, paying $140 million for 233 Wilshire Blvd. in September.

Nevertheless, Blackstone was the most active player buying and selling on the market in 2016, cashing in $2.3 billion on 7 properties in Los Angeles and Santa Monica, and an additional $91 million on three properties sold through affiliate Equity Office Properties Trust. Blackstone also closed one acquisition in 2016, shelling out $583 million for the Howard Hughes Center in Los Angeles in November. The company was also the one that cashed in $1.3 billion on the Wilshire Boulevard and Glendon Avenue portfolio sale to Douglas Emmett and QIA (the largest deal of the year), which included some of the final remnants of its $39 billion buyout of Equity Office Properties Trust in 2007, according to The Wall Street Journal.

Largest Sale of the Year – Douglas Emmett, QIA Join Forces on $1.3B Deal

The largest office sale of the year closed in the spring, when Santa Monica-based REIT Douglas Emmett partnered with the Qatar Investment Authority (QIA) on the acquisition of a four-building, 1.7 million-square-foot portfolio from the Blackstone Group. The portfolio, consisting of four Class A office buildings located in Los Angeles’ Westwood submarket, sold for roughly $1.34 billion, or $777 per square foot. With the purchase of 10880, 10940 and 10960 Wilshire Blvd. and 1100 Glendon Ave., Douglas Emmett controls 74% of the Westwood Wilshire office corridor, according to a company statement. For QIA, the acquisition marked the first step in its plan to invest $35 billion in North American real estate by 2020.

10880, 10940, 10960 Wilshire Blvd. and 1100 Glendon Ave. (via Yardi Matrix)

10880, 10940, 10960 Wilshire Blvd. and 1100 Glendon Ave. (via Yardi Matrix)

Top 20 Largest LA County Office Sales of 2016

#Sale PriceAddressCityBuyerSeller
1$1,340,000,00010880, 10940, 10960 Wilshire Blvd & 1100 Glendon AveLos AngelesDouglas Emmett + Qatar Investment Authority (QIA)Blackstone Group
2$583,000,000Howard Hughes CenterLos AngelesBlackstone GroupHines Interests
3$511,100,0002425 Colorado AveSanta MonicaBoston PropertiesBlackstone Group
4$428,900,00012181 - 12121 W Bluff Creek DriveLos AngelesEdward J. Minskoff EquitiesJP Morgan Asset Management
5$403,000,5003000 Olympic BlvdSanta MonicaBrightstone Capital Partners + Artisan Realty AdvisorsJamestown
6$367,648,0002700 Colorado AveSanta MonicaOracleInvesco Real Estate
7$336,000,000444 S Flower StLos AngelesCoretrust Capital PartnersHines Interests
8$328,000,000800 Apollo St & 2175, 2121, 2120 Park PlaceEl SegundoIntercontinental Real EstateInvesco Real Estate + Second Street Ventures
9$313,636,000400 S Hope StLos AngelesGLL Real Estate Partners + AFL-CIO Building Investment TrustCBRE Global Investors
10$311,000,00011601 Wilshire BlvdLos AngelesHudson Pacific PropertiesBlackstone Group
11$295,000,0006500 Wilshire BlvdLos AngelesCedars-SinaiMorgan Stanley
12$256,000,00055 S Lake Ave & 800 E Colorado BlvdPasadenaCBRE Global InvestorsBeacon Capital Partners
13$225,000,00012100 Wilshire BlvdLos AngelesDouglas Emmett + Qatar Investment Authority (QIA)Hines Interests
14$210,000,0001200 W 7th StLos AngelesRising Realty Partners + H.I.G. Realty Partners + Silverpeak Real Estate PartnersEquity Resource Investments
15$209,200,0008560 W Sunset BlvdWest HollywoodKilroy RealtyBroadreach Capital Partners
16$165,000,00012777 W Jefferson BlvdLos AngelesRockwood CapitalVantage Property Investors
17$147,000,00021255 Burbank BlvdWoodland HillsAngelo Gordon & CompanyStarwood Capital Group
18$139,500,000233 Wilshire BlvdSanta MonicaDouglas EmmettBlackstone Group
19$130,000,00024300, 24303, 24305 Town Center Drive & 24200 Magic Mountain PkwySanta ClaritaAdler Kawa + Praelium Commercial Real Estate + Perennial Investments and AdvisorsInvesco Real Estate
20$128,450,000915 Wilshire BlvdLos AngelesLincoln Property Company + Rockwood CapitalBrickman

LA County 2016 Office Transactions Map

To see a list of all the transactions that closed in Los Angeles County in 2016, download raw report data.

What’s Next? LA Projects in the Works

Los Angeles’ office market has never been more appealing to investors, and the signs all point to more fruitful years ahead. According to data from Yardi Matrix, 24 office properties totaling 7.2 million square feet are currently under construction in L.A., with 2.3 million square feet concentrated in the Los Angeles CBD and 2.2 million square feet in East Los Angeles. An additional 47 projects totaling 9.3 million square feet are in the planning stages, signaling that the market is poised to gain even more momentum in the following years. We’ve gathered some of the most notable projects currently underway below:

Wilshire Grand Center
Wilshire Grand Center (right) - courtesy of AC Martin via wilshiregrandcenter.com

Wilshire Grand Center (right) – courtesy of AC Martin via wilshiregrandcenter.com

Currently under construction in Downtown Los Angeles’ Financial District, the 1.3 million-square-foot skyscraper has already topped out and is scheduled for completion in the spring of 2017, as per Yardi Matrix data. Upon completion, the 73-story tower will become the tallest building in Los Angeles and also the tallest building in the state of California, surpassing the 73-story U.S. Bank Tower by 82 feet. Located at 900 Wilshire Blvd., the tower is being developed by Korean Air, a subsidiary of Seoul, South Korea-based Hanjin Group. The glass-clad building is part of a larger mixed-use project meant to revitalize the downtown area and infuse more than $1 billion into the Los Angeles economy, according to the project’s official website.

The Sears Historic Mail Order Building Redevelopment
Sears Historic Mail Order Building (via Yardi Matrix)

Sears Historic Mail Order Building (via Yardi Matrix)

The 1.8 million-square-foot landmark Boyle Heights building served as one of Sears, Roebuck & Co.’s mail-order centers until 1992, when Sears closed and sold the distribution facility. The property at 2650 E. Olympic Blvd. has been vacant ever since, except for a Sears retail store still operating on the ground floor. In 2013, local developer Izek Shomof acquired the 90-year-old asset for $29 million, and landed a permit to undertake an adaptive reuse project at the site. According to Yardi Matrix, the redeveloped project will ultimately include 1.2 million square feet of residential space, 343,853 square feet of retail and 250,000 square feet of office space. Delivery is scheduled for the summer of 2021.

The Long Beach Civic Center P3 Project
Long Beach Civic Center rendering (courtesy of Plenary Edgemoor Civic Partners)

Long Beach Civic Center rendering (courtesy of Plenary Edgemoor Civic Partners)

In July 2016, the City and Port of Long Beach, together with lead advisor Arup, broke ground on the $520 million Long Beach Civic Center–the second large social infrastructure P3 project to reach financial close in the U.S. According to an official statement, the project is set to include: an 11-story, 270,000-square-foot City Hall; an 11-story, 237,000-square-foot Port Headquarters Building; a two-story, 92,000-square-foot Main Library; a 73,000-square-foot Civic Plaza; 469 underground parking spaces; a central utility plant; and a revitalized City park of 4.9 acres. The development team expects to achieve LEED Platinum or net zero certification from the USGBC for the project.

Methodology

  • Database: Yardi Matrix
  • Sale price per transaction > $5,000,000
  • Sq. ft. > 50,000
  • Transactions recorded until Feb. 15, 2017
  • Area: Los Angeles County
  • Property type: Office
  • Cross-market transactions were excluded
  • Average price per sq.ft. – portfolio sales and ownership stake deals were excluded
  • Total sq. ft. – ownership stake deals were excluded

Want to see what else the county has to offer? Head over to CommercialCafe for more Los Angeles commercial real estate.

Note: While we have made every attempt to ensure that the information included herein has been obtained from reliable sources, we are not responsible for any inaccuracies or omissions, or for the results obtained from the use of this information. 

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