• calendar_month February 10, 2022
• folder Commercial Real Estate

The company that bills itself as the largest Los Angeles office landlord is bullish on apartments.

Jordan Kaplan, president and CEO of Santa Monica, California-based Douglas Emmett, said he expects leasing activity in the company's 18.1 million-square-foot office portfolio to start picking up this year, though he hedged about when he thought it would reach pre-pandemic levels.

The outlook for apartments, however, was another matter.

In an earnings call with investors, Kaplan said the company is working as quickly as possible to break ground on additional apartment developments as the company's portfolio reached a minuscule 0.7% vacancy level. The company owns multiple sites in Los Angeles and Honolulu that support future ground-up residential development, but didn't disclose how many units it planned to break ground on this year.

It said it completed construction on its Landmark Los Angeles, a 34-story, 376-unit luxury apartment property on Wilshire Boulevard near the heart of Brentwood, an upscale Westside neighborhood. Tenants are expected to move into the property next month. The company's 1132 Bishop office-to-apartment conversion project in downtown Honolulu is nearly half-leased.

In total, Douglas Emmett owns a dozen multifamily properties featuring 4,388 units.

"Given our progress of these two properties, we're focused on our next development projects," Kevin Crummy, chief investment officer, said.

The emphasis comes as the greater L.A. apartment market keeps getting tighter. The average vacancy across the region is 3.5%, down from 5.8% a year ago, according to CoStar data. In addition, the market's average monthly rent is $2,111, up from $1,971 a year ago.

Office Outlook Inches Upward

In the Wednesday call with investors, Kaplan said the company's office occupancy rate is roughly 85%, which is near the greater L.A. average. Once it surpasses 90%, he said, it could put upward pressure on rents.

"I don't want to be really optimistic and then be wrong," he said. "I'm pretty positive that we should have a good year, but I don't know where we'll really play out. ... We've been through the paddle whacking over the past seven quarters."

The company reported it leased 3.7 million square feet of office space in 2021, including 1.2 million square feet of new leases. That's the most office space the company has leased in a single year since it went public in 2006.

Douglas Emmett's rosier fourth-quarter office leasing numbers follow a similar report in January from Boston-based Boston Properties, one of the nation's largest developers and office landlords, according to previous CoStar reporting. The company said that leasing had returned to pre-pandemic levels at its office properties and it expected a surge in deals as the pandemic's impact on the economy fades and more companies return to physical office spaces.

However, millions of Americans keep working from home, as some companies look to further downsize or put up space for sublease. The Los Angeles office market featured an average occupancy of 30.9% as of Feb. 2, below a 10-market average of 33%, according to Kastle Systems, a security company that analyzes employee access-card swipes in more than 2,500 office buildings nationwide. The Los Angeles office market's occupancy has hovered between 20% and 30% for the past two years, according to Kastle Systems.

Overall, L.A.'s average office market rent has held steady year over year at $41.36 per square foot, according to CoStar data. The market's average vacancy rate climbed to 13.9%, up from 12.5% one year ago today.