Los Angeles Office Leasing Dives as Availability Tops Record

Office availability in Los Angeles continue to set new records in the fourth quarter, while leasing activity plunged as tenants considering discretionary lease deals stayed on the sidelines.

Availability increased 20 bps to end 2023 at 26.7%, a couple of ticks up from the 26.5% reported in the third quarter, according to a new market report from Savills. The availability rate in DTLA surged to 29.7%.

“Availability is at a record high market-wide as office space demand has decreased post-pandemic due to hybrid workplace strategies and slower office-using employment growth,” Savills said.

Leasing activity dropped to just under 2.2M SF in the fourth quarter, a 28% dive from the 3M SF reported in the previous quarter. Total leasing activity for 2023 came in at 10.5M SF, a 15% drop from the 12.3M of leasing activity reported in 2022.

Compared to pre-pandemic levels, annual leasing activity is down 42% from the 18M SF total reported in 2019. Available sublease space decreased slightly to 10.4M SF from 10.8M SF in Q3, still a tick higher than the 10.3M SF in the last quarter of 2022.

“Discretionary leasing has largely remained on the sidelines in 2023, as the majority of deals continue to be largely expiration-driven,” the report said, adding there is hope that 2024 will produce better results due to new contracts in Hollywood.

“With the Hollywood strikes now over and the entertainment/media sector expected to generate more demand again, there is cautious optimism that office space demand will increase in 2024,” Savills said.

The general malaise in L.A.’s office market doesn’t appear to be putting a dent in relatively high rents.

The overall average asking rent of $3.93 per SF foot per month in the fourth quarter represented a 2.2% increase over the average asking rent at the end of 2022, which Savills attributed to the availability of speculative office space and higher priced trophy space.

“The average asking rent for Class A space increased to $4.14 per SF as landlord concessions such as free rent and tenant improvement allowances continue to see record highs as landlords aggressively look to preserve occupancy,” Savills said.

With interest rates not expected to begin dropping until 4Q 2024, Savills is projecting that an occupier flight to capital will continue in the first half of the new year.

“Office building owners will still contend with the higher cost to refinance in 2024 with more foreclosures and fire sales expected, leading to increased occupier flight to capital,” the report said.

“Expect occupier flight to quality, as well as flight to capital to continue as those who can [will] lock in favorable deal terms into the next decade.”