Los Angeles Office Market
Total vacancy and availability continued to climb to new highs, reaching 22.2% and 27.6% respectively. Sublet availability was generally flat this quarter at 5.2%. Although MAANG firms have enacted cost-cutting measures, they have generally retained their local footprints thus far, aside from a few sublease offerings. Occupiers continue to “trade up, while paring down”: Pursue trophy-grade space as they reduce their footprints. Vacancy for commodity office space will increase. 44% of Greater Los Angeles’ office inventory consists of buildings with sub-80% occupancy. Buildings with lower occupancy thresholds tend to struggle to generate positive NOI, which, in turn, makes it difficult to support debt (assuming debt is present on a given building).
Los Angeles Industrial Market
Fervent tenant demand for industrial space that came from anomalously high consumer spending in recent years is no more and most occupiers are focused on cutting costs amid still-high inflation. Pivoting from a “just-in-case” to a “just-in-time” inventory model is one way to reduce overhead by shedding unneeded space. This is leading to an uptick in available sublease space, which is now 7.5 MSF, the highest amount in three years. Class A start rents are progressively cooling following unprecedented growth in recent years. Tenants are committing to shorter lease terms with the expectation that rates will continue to fall. Landlords are becoming more competitive. Net absorption was negative for the fifth consecutive quarter. Vacancy, over this time, increased from 0.9% to 2.1% across the nearly 1.1-BSF market.