Is Office the New Darling of DTLA?

The office market could be on its way to becoming the darling of Downtown Los Angeles. While multifamily is experiencing a—likely temporary—spell of over supply, the office market has experienced seven straight quarters of strong leasing activity, positive absorption and declining vacancy. According to the latest report from the DCBID, office vacancy dropped 1.2% year-over-year to 17.5% and rents are up 5% year-over-year to $3.80.

“Diversification of the tenant base in DTLA—with growth in tech and creative industries—continues to be the big story and the driving factor – not only for office leasing, but for residential as well, because both sectors are attracting the same demographic: young, educated professionals drawn to DTLA’s vibrant urban lifestyle,” Nick Griffin, executive director of the DCBID, tells GlobeSt.com. “Further, it is the access to this talent, which for DTLA includes its surrounding neighborhoods, and those within commuting distance. That is also a critical factor. Its central location and access to public transportation from throughout the county is an important draw for companies looking to establish their first location in Los Angeles. Lastly, it is the desirability of the Downtown ecosystem. It’s a dynamic, creative scene that attracts innovators and entrepreneurs, which creates an exciting energy for growth.”

The office market is directly linked to the multifamily space, particularly in a live-work-play market like Downtown Los Angeles. As companies continue to migrate to and grow in the market, the job growth will fuel absorption of new housing development. “The two sectors are feeding off each other because of the access to talent and the desirable lifestyle,” says Griffin. “The unique-to-LA prospect of not just walking to work, but also to dinner, the movies, museums and shopping, has a very strong appeal for a large proportion of the working population, particularly the key demographics of Millennials and the next generation, but also within a growing contingent of empty-nesters and older professionals, as well.”

This is likely just the beginning of significant growth in the office sector. “We’ve been predicting a tipping point for the office sector for all the reasons already mentioned,” says Griffin. Also, because of the amount, quality, diversity, and value of the office space that DTLA has to offer—from class A towers reinventing themselves for a new generation of tenants, to historic office buildings updated for today’s creative companies, to industrial conversions reimagined for the innovators drawn by Downtown’s energy,” says Griffin. “DTLA is still a bargain relative to the Westside and other comparable markets, many of which have a severe shortage of space and not much capacity to expand. Whereas Downtown is by far the largest commercial market – with millions of square feet and plenty of room to grow – so we see a great deal of upside as we hit that tipping point, which if the recent residential demand is any indicator, I think we already have.”