Southern California office, industrial markets to improve in 2006.

Position:Good occupancy rates for offices

Expect slow and steady gains in the overall economy to continue to improve office and industrial property fundamentals in 2006 across the Southern California counties of Los Angeles, Orange, Riverside and San Bernardino, according to a study released by the University of Southern California's (USC's) Lusk Center for Real Estate, Los Angeles.

The Lusk Center's 2005 Casden Office and Industrial Market Forecast for Southern California noted that steady job growth has helped to reduce office vacancy rates and raise rents throughout the region.

"Lease renewals reflect the positive outlook of business owners across diverse industries," said Delores Conway, director of the Casden Forecast. "Southern California office and industrial markets will continue to hold their value through 2006, thanks to a flood of capital from mutual funds, REITs [real estate investment trusts] and pension funds needing to diversify real estate holdings and lock in long-term revenue streams."

In Los Angeles County, office vacancy rates dropped substantially throughout the L.A. Basin with the greatest absorption occurring in downtown Los Angeles. Almost all available office space downtown has traded hands since 2001, each time with prices inching upward. Sales of office buildings continued at a record pace, with soaring prices for commercial property, the report noted.

The L.A. County industrial market had the lowest vacancy rate in the United States at 0.8 percent at the end of 2005, and was the largest industrial center in the country with 969 million square feet of space. Rents have risen, but congested freeways, overburdened rail lines, environmental concerns and a shortage of industrial space have all added up to new challenges for the L.A. region. Strong demand for industrial property for sale or lease will continue with soaring prices from a constrained supply.

For the first time in four years, Orange County's Airport area submarket around Newport Beach and Irvine has single-digit vacancy rates of 8 percent, according to the report. This area continued its dominance with the highest rents at $2.66 a square foot--a 12.7 percent annual increase--and the highest net absorption of 1.24 million square...

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