Office Availability Rate Nears 27% in Los Angeles

Office leasing activity in Los Angeles dropped 15% in the second quarter to a total of $2.4M SF, trimming about 500K SF off the total in Q1 2023 as uncertainty rules the market and availability soars to record highs.

The persistence of hybrid work in the Los Angeles office market has pushed availability rates to a new record of 26.6%. Available sublease space also is pushing the envelope, increasing to 10.8M SF from the Q1 level of 10.4M SF, Savills reported.

Despite lagging demand, overall average asking rents actually ticked up to $3.84 per square foot. However, Class A average asking rent gained a couple of pennies to $4.06 per SF.

“With more office property distress expected in the second half of 2023 and into 2024, occupiers will need to continue to exercise caution and carry out the appropriate due diligence on landlords,” Savills Q2 report said.

“As a result, expect tenant-favorable conditions to remain for the foreseeable future as landlords look to preserve occupancy amidst continued flight to quality and increased flight to capital,” the report said.

Savills said it expects available sublease space to continue to increase in Los Angeles as occupiers remain focused on right-sizing their existing real estate footprints.

“With most discretionary leasing now on the sidelines, expect leasing activity to remain lower amidst continued economic uncertainty in the short-term,” the report said.

Leasing activity in Los Angeles is now more than 700K SF below the five-year quarterly leasing average of 3.2M SF. The quarterly leasing total last exceeded the five-year average in Q1 2022; the total last topped 3M SF in Q3 2022.

The five largest second-quarter lease transactions in Los Angeles involved three renewals, an extension and a relocation. In the largest deal, the Eastern Los Angeles Regional Center, which extended a 123K SF lease at 1000 Fremont Avenue in the San Gabriel Valley.

Team One inked a 76K lease renewal at 13031 in at w. Jefferson Boulevard in Playa Vista; Lumen Technologies renewed a 68K SF space in DTLA; The Switch relocated to a 76K Sf space at 1840 Victory Boulevard in Burbank.

Rising interest rates and falling office valuations resulted in several high-profile CMBS loan defaults in DTLA office towers this year. Loans backed by two towers owned by Brookfield’s DTLA REIT, the Gas Company Tower and EY Plaza, went into receivership.