Asking Lease Rates Increase Despite A Rise In The Vacancy Rate
MARKET OVERVIEW
Weighted average asking lease rates for the entire San Gabriel Valley office market increased by three percentage points over the previous quarter to end at $2.43 PSF per month, Full Service Gross (FSG). Last quarter asking lease rates actually declined; spurred on by rising vacancy rates in Class B space as landlords cut their rates to lease up this space.
This quarter, Class A vacancy rates are beginning to rise but landlords are viewing this as an opportunity to lease their prestigious space at higher rates. These landlords have remained firm on their high asking lease rates and are unlikely to drop them, preferring instead to offer generous tenant improvements and beneficial occupancy packages. As such, we can expect the average asking rental rate to increase into the next quarter as more Class A space becomes available, raising the average asking rate for the region.
The total vacancy rate for the San Gabriel Valley office market rose to 8.1% this quarter, up a full percentage point from a record low 7.1% the previous quarter. A higher portion of this vacant space is sublet space, which on average is 40 cents cheaper than direct vacant space. If sublet vacant space increases at a faster rate than the direct vacant space, this will put a significant damper on the asking lease rates for the region.
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