Los Angeles Office Market
Remote work has led to companies shrinking their footprints, while lenders are more hesitant to make loans on office buildings. Today’s interest rates have also hurt borrowers with floating-rate loans and higher mortgage payments. 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 24.5% and 29.0%, respectively. Available sublease grew by 320,702 SF over the course of the quarter to reach 11.3 MSF. The market will not recover as long as sublease space remains elevated. Resolution of strikes in the entertainment industry will no longer hinder media leasing activity; but profitability pressures, high interest rates and mergers will be a constraint.
Download Los Angeles Office Market Report 2Q24Los Angeles Industrial Market
Leasing volume and the average weighted lease term marginally increased over the past two 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 was negative for the eighth consecutive quarter, while vacancy climbed to a 14.5-year high of 3.7%. Sublet availability increased 11.6% over the preceding quarter to reach 9.7 MSF. Class A infill start rents were down 20.3% from seven 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 (5.0 MSF) has narrowed since the third quarter of 2023. Thirty-nine buildings are underway and a mere 10.3% are pre-leased.
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