2007 office rents marched forward in greater Los Angeles as landlords charged record rental rates. They did so partially because building sale prices were so elevated that the new landlords needed to charge higher rents to achieve their proformas. High property prices also resulted in increased property taxes, which cut into profitability for landlords. Landlords passed a portion of the increase onto tenants.

The market is now showing signs of change. High rental rates and new concerns about the economy are producing lower tenant demand.  As leasing slows, construction is outpacing demand, making the change more profound.

The Los Angeles market is beginning a correction. Rents will stabilize and decrease over the next one to two years. Now is the time for investors in office real estate investment products to reevaluate their plans for the coming year.