The Los Angeles office market is headed for a prolonged office recovery. A new report from Marcus & Millichap forecasts that office vacancy will grown 160 basis points this year to 18.5%, and office rents will fall 1.4% to $37.50 per square foot.

However, the stars are aligning for recovery. Los Angeles has done well in its vaccine distribution efforts and COVID-19 restrictions are waning across the market. As a result, the market can start down the long road to recovery; however, the pandemic has damaged the market. Many tenants have paused any expansion plans, and for tenants that had lease negotiations, many reduced their foot print, according to the report. The first quarter leasing was improved compared to the previous quarter, but most lease agreements were 10,000 square feet or less, showing a trend favoring smaller spaces.

New construction is also putting downward pressure on the office market. 4.2 million square feet of new office space will deliver to the market this year, increasing the total office inventory by 1.1%. The number is on par with deliveries from the prior two years. More than half of the new construction projects are located in the South Bay and West L.A. areas, and many are large speculative builds. The report predicts that the latter will be challenging to lease up, thanks to increased availability and sublease supply.