Los Angeles Office Sublease Space Increases by 20%

Los Angeles has seen a significant increase in its supply of sublease office space. According to a report from JLL, the sublease supply in L.A. has increased 20% since the start of the pandemic. During the pandemic, metros like Los Angeles with a high concentration of technology companies have seen an increase in sublease space.

“If you look at the major metropolitan areas across the country that have seen the largest uptick in sublease activity, they tend to have a substantive technology-based tenant base,” Josh Wrobel, managing director at JLL, tells GlobeSt.com. “As you can imagine, technology companies tend to experience larger volatility than traditional industries and as such, some of the technology companies have land-banked space for growth prior to the crisis and when you combine land-banking and an economic downturn, you end up with an even greater impact to the sublease market than you’d see during a traditional recession in technology driven economies.”

Luckily, L.A.’s office market was strong entering this recession, and Wrobel believes that the market can absorb the amount of sublease supply without a significant impact on the direct office lease space. “To date, Los Angeles sublease inventory—2.8% sublease availability—sits over 1.5 million square feet less than the peak of the Great Recession—3.6% sublease availability—and the impact of the new sublease space has yet to be felt in a substantive way given the general lack of activity in the market due to the crisis holding pattern,” he says.

In addition, most of the current sublease supply is located in the West L.A. market, which is one of Los Angeles’ tightest and most in-demand market. “Arguably, on a go forward basis with 59% of the new sublease inventory landing in Los Angeles tightest region in buildings that tend to be of moderate size, on average, 8-stories and less than 200,000 square feet, and lower quality as 43% of the new subleases are in class-B and C buildings, Los Angeles’ new subleases will have a lower impact on direct leasing,” says Wrobel.

The pandemic, however, has had an additional strain on the office market. Companies have been forced to transition to work-from-home models, and some might choose to remain in a remote work environment or a hybrid model. Ultimately, this will impact both the direct leasing and sublease spaces. However, Wrobel doesn’t think that there will be widespread remote work. “My personal opinion is that the most significant impact of remote work policies for Los Angeles is that employees will use work from home to ease traditional lengthy commuting times by using newly renovated home offices to allow them to skip Los Angeles’ busiest commuting windows,” he says, adding the culture and collaboration will continue to drive demand for office space.