Los Angeles Office Market
Remote work has led to companies shrinking their footprints, while lenders are more hesitant to make loans on underperforming office buildings. Leasing activity is mostly expiration-driven. Tenants, on average, are reducing their footprints by 15-20% when their leases come due. Total vacancy and availability climbed to new highs of 25.1% and 29.6%, respectively. Most active requirements are for traditional industries, such as law firms, state and local government agencies and professional services. Tech and media demand remains muted as whole. Top-tier, well-capitalized buildings in desirable areas of the market are seeing healthy leasing activity. ‘Well capitalized’ is synonymous with ‘more funding’ for T.I.s.
Download Los Angeles Office Market Report 3Q24Los Angeles Industrial Market
Leasing activity and the average weighted lease term marginally rose over the past three quarters after hitting cyclical lows at the end of 2023. Still-high rents, elevated business costs and tepid retail sales are hindering a more robust recovery. Net absorption losses totaled -1.5 MSF in the third quarter, a marked improvement compared to the previous six quarters, which averaged -3.0 MSF. Vacancy growth also slowed, up 20 bps from last quarter to settle at 3.9%. Sublet availability increased 15.8% over the last three months to reach 10.4 MSF. Class A infill start rents were down 22.0% from eight quarters ago. A drop, but not a severe one when considering rents grew by 112.6% from early 2021 to late 2022. The construction pipeline (6.6 MSF) grew amid few third-quarter deliveries and several new groundbreakings. Fifty buildings are underway (7.8% are pre-leased)
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