Executive summary
- Q1 sales volume drops 36% year-over-year to $1.5 billion
- average price per square foot down 46% from Q4 2016 ($294)
- Warner Center buildings sell to Oaktree Capital in largest sale of Q1
- 11 projects totaling 2.8 million square feet on track for Q2 delivery
Following its most active year in a decade, the Los Angeles office market recorded a rather slow first quarter in 2017, in terms of both sales volume and average price per square foot. However, with an unemployment rate of 4.8% as of February and solid job gains driving demand across all asset classes, office sales activity in L.A. County is likely to pick up the pace in the upcoming months.
We used Yardi Matrix data to analyze all Q1 sales for office buildings larger than 50,000 square feet (see ‘Methodology’ section). We also looked at new office projects scheduled for completion in the second quarter of 2017, using the same data source.
Despite the drop in sales volume in Q1, Los Angeles County fared better than other California office markets: the San Francisco County office scene came in second, with $1.35 billion in sales volume in Q1, while the Bay Area market was home to 17 deals totaling $1.30 billion. The slowest start of the year among the markets we analyzed was recorded in Sacramento, where just three office deals exceeded the $5 million mark, totaling $50 million in Q1 sales volume.
Office Sales Volume Drops 36% Y-o-Y in Q1
Office sales volume in L.A. County totaled $1.5 billion in Q1 2017, a 36% drop year-over-year. Though it did not rise to the level recorded in Q1 2016, when 17 properties traded for $2.35 billion, the total sales volume in the first quarter of 2017 was nearly four times higher than the number recorded in Q1 2013 and 45% higher than in Q1 2015. A total of 22 office deals closed in the first three months of 2017, encompassing 5 million square feet of space and totaling $1.5 billion in dollar volume. By comparison, the market saw 21 office deals close in Q4 2016 for $3.29 billion—the best quarter in the past four years in terms of office sales.
Average Price per Square Foot Down 46% from Q4 2016
The average price per square foot for a Los Angeles County office building dropped nearly 46% from Q4 2016, when assets traded at $539 per square foot. The average price rested at $294 in Q1 2017—a 21% drop year-over-year and the lowest quarterly number since Q4 2015 (our calculation of the average per-square-foot price excluded partial stake, ground lease and portfolio deals). Nonetheless, the drastic drop in average per-square-foot prices is likely just a consequence of heavy new office construction in the area and rising vacancy rates–according to Colliers, there is currently 5.6 million square feet of new office development in the Los Angeles Basin market, most of which is scheduled for delivery in 2017.
Largest Sale of Q1 – Warner Center Buildings Trade for $236M
There were 22 office deals over $5 million and exceeding 50,000 square feet to trade on the Los Angeles office market in the first months of 2017, for a total sales volume of $1.5 billion. The largest office transaction recorded in Q1 closed in February, when Oaktree Capital Management paid $236 million to Hines Interests for five buildings within the Warner Center development in Woodland Hills, Calif. The office properties located at 21271, 21281 and 21301 Burbank Blvd. traded alongside 5700 and 5820 Canoga Ave. for $291 per square foot, together with two parking garages, according to The Real Deal. Woodland Hills was home to two other large Q1 office sales—the $51 million sale of 21021 and 21031 Ventura Blvd. and the $22 million sale of 6200 Canoga Ave. Los Angeles was the setting for five office transactions so far in 2017, the largest one being the $168 million sale of three Malibu and Playa Vista assets to Chicago-based LaSalle Investment Management. Check out the full list of large Q1 office transactions below:
| Address | City | Sale Price | Buyer | Seller |
|---|---|---|---|---|
| 21271, 21281 & 21301 Burbank Blvd, 5700 & 5820 Canoga Avenue | Woodland Hills | $235,500,000 | Oaktree Capital Management | Hines Interests |
| 655 North Central Avenue | Glendale | $179,000,000 | DivcoWest | PGIM Real Estate |
| 5340 Alla Road, 12901 West Jefferson Blvd, 22619 Pacific Coast Hwy | Los Angeles | $168,000,000 | LaSalle Investment Management | Canyon Partners Real Estate + Pacshore Partners |
| 1000, 1127-1131 South Fremont Avenue | Alhambra | $156,587,000 | US-China Real Estate Investment Center | Ratkovitch Company |
| 1450 San Pablo Street | Los Angeles | $112,000,000 | University of Southern California | Doheny Eye Institute |
| 611 North Brand Blvd | Glendale | $83,000,000 | Onni Group | U.S. Bank - REO |
| 300, 400, 430, 440, 450 East Huntington Drive | Arcadia | $62,070,000 | China Oil USA | Bend Properties |
| 2411 West Olive Avenue | Burbank | $52,500,000 | Menlo Equities | TIER REIT |
| 1314 7th Street | Santa Monica | $52,500,000 | DivcoWest | Pacshore Partners + Alcion Ventures |
| 2300 East Imperial Hwy | El Segundo | $52,000,000 | Live Oak Properties | Uniwell Corporation |
| 21021 & 21031 Ventura Blvd | Woodland Hills | $51,125,000 | The Somerset Group | Equity Office Properties Trust |
| 200 South Los Robles Avenue | Pasadena | $46,000,000 | J. Iloulian Rugs | American Realty Advisors |
| 3330 Cahuenga Blvd West | Los Angeles | $35,999,500 | 4M Investments | Equity Office Properties Trust |
| 3402 Pico Blvd, 2403 Centinela Avenue | Santa Monica | $35,000,000 | Cypress Creek Renewables | Hudson Pacific Properties |
| 10585 & 10635 Santa Monica Blvd | Los Angeles | $33,428,000 | Onni Group | Alaska Permanent Fund |
| 4330 Park Terrace Drive | Westlake Village | $26,750,000 | A group of investors | Barker Pacific Group |
| 9320 Telstar Avenue | El Monte | $26,000,000 | Charles Company | Kennedy Wilson |
| 6700 East Pacific Coast Hwy | Long Beach | $24,000,000 | ValueRock Realty Partners | Colton Company, The |
| 6200 Canoga Avenue | Woodland Hills | $22,000,000 | Gelb Group | Maxxam Enterprises |
| 520 North Central Avenue | Glendale | $19,565,000 | Lincoln Property Company + Long Wharf Capital | PGIM Real Estate |
| 225 East Colorado Blvd | Pasadena | $15,000,000 | ANDA Realty Capital | Barker Pacific Group |
| 3731 Stocker Street | Los Angeles | $13,327,500 | Sharp Capital + Cole Capital Group | represented by Dunn Property Group |
What’s Next? Office Projects on Track for Q2 Delivery
There are currently 11 large office developments totaling 2.8 million square feet scheduled for completion in Q2 2017, 8 of them located in Los Angeles. The largest project to come online in Q2 will also be the tallest building in L.A. and California and the tallest building west of the Mississippi River: Hanjin International’s 73-story Wilshire Grand Center at 900 Wilshire Blvd. The 1,100-foot skyscraper has surpassed the U.S. Bank Tower by 82 feet, and is scheduled for completion in late May. The developer is a subsidiary of South Korea-based Hanjin Group, which is also the parent company of the now-bankrupt Hanjin Shipping.
Methodology
- Parameters: over 50,000 square feet, over $5 million in sale price;
- Transactions recorded up until April 12th, 2017;
- We excluded ground lease, ownership stake, controlling interest and portfolio deals from our calculation of the average price per square foot;
- Data source: Yardi Matrix.
