Much of the difference between Downtown Los Angeles and the core of downtown is that creative office tenants have never looked seriously at the institutional quality buildings in the market, and has instead turned to surrounding pockets, like the Arts District. “Every institutional landlord would love to see creative tenants in institutional buildings,” he adds. “However, the majority of the creative deals that we have seen have happened outside of the core. Warner Music signed 300,000 square feet, but I don't think they were ever serious about the institutional quality buildings that are Downtown.”

LOS ANGELES—Office concessions in Downtown Los Angeles has increased to $100 per square foot, according to a new report from Savills Studley. The extra push helped to drive much of the office leasing activity in 2016, which slowed down compared to 2015, a record-breaking year. Owners responded to the tempered demand with increases in concessions. While the increase is surprising, market expert Mark Sullivan says that it is nothing new for the market.

“Downtown has always been the leader in terms of concession value,” Sullivan, EVP, director and regional manager, tells GlobeSt.com. “Where net rents have inched higher, the growth in concessions has probably negated some of the growth and chewed into the comparable net rents. Concessions are growing at a faster rate than rent.”

According to Sullivan, while the market is growing and has seen tremendous new development, much of the office product has been in the Los Angeles market for decades. During that time, the office segment has not shown much change. “I don't know that demand has necessarily fallen off. This has been a pretty flat demand market for two decades,” he says. “If you were to take to stock of institutional quality buildings downtown, vacancy hasn't changed much and absorption hasn't changed much. When we talk about the office market downtown, we are really talking about the institutional buildings, and all of them, except for the Korean Air building, have been in that inventory for 25 years.”

High concessions in the market, however, might be on the way out. According to the same report concessions are expected to stabilize this year, although leasing activity is expected to slow even further. “Over the last four or five years, we have seen a spike in the Westside markets that is unprecedented,” adds Sullivan. “Downtown is not as dynamic. It has never been as dynamic, and through bank mergers and law firm mergers, we have seen somewhat less demand, and institutional owners have chosen to compete.”

Much of the difference between Downtown Los Angeles and the core of downtown is that creative office tenants have never looked seriously at the institutional quality buildings in the market, and has instead turned to surrounding pockets, like the Arts District. “Every institutional landlord would love to see creative tenants in institutional buildings,” he adds. “However, the majority of the creative deals that we have seen have happened outside of the core. Warner Music signed 300,000 square feet, but I don't think they were ever serious about the institutional quality buildings that are Downtown.”