Office Sales Drop 50% in L.A., Prices Top Other CA Metros

Investment sales of offices in Los Angeles have dropped by more than 50% thus far this year compared to 2023, while the average deal prices in the city continue to outpace other large California metros.

As of the end of Q3 2024, office transactions totaled $985M in Los Angeles, less than half of the nearly $2B in office sales for the same period last year, according to CommercialEdge data.

Despite the huge drop in sales, L.A. remains the priciest metro market in the state for office transactions, with an average sales price thus far this year of $345 per square foot, an increase of $40 per square foot over the average benchmark last year at this time.

Values for the asset class have been dropping in California’s largest metros as vacancy rates remain stubbornly high and tenants downsize their footprints.

In San Francisco, which has seen a fire sale of heavily discounted downtown office properties since the end of the pandemic, the average sale price at the end of Q3 was $268 per square foot on transactions totaling $339M. The office vacancy rate in the city has leveled off at close to 37%, a record high.

The office sales volume total in San Francisco at the end of Q3 has dropped by 40% from the $571M total for the same period last year.

San Diego’s sales volume for the first three quarters of 2024 totaled $447M, with an average price of $196 per square foot. This represents a year-over-year drop of 34%.

In September, The Irvine Company sold 34-story Symphony Towers for $45.7M in a deal valued at about $84 per square foot, nearly 70% less than the $134M that the company paid for the iconic downtown San Diego landmark. At the time of the sale, Symphony Towers was 75% leased.

The total office vacancy rate in San Diego hit 14% in the third quarter, its highest level since 2012. No office move-ins encompassing more than 25K square feet occurred in Q3 and sublease space remained at an all-time high of 3.3M square feet, according to JLL’s latest market report.

However, a property that is almost fully leased still cab commands a sale price that is well above the average sales benchmark in the San Diego market:

The Highlands Corporate Center, a five-building Class A office campus encompassing 211K square feet in Del Mar Heights traded last month for $77M, which is nearly $365 per square foot. The office complex, which opened in 1985, is about 90% leased.

While the average office sale price for the Los Angeles metro remains strong, the largest office sales transaction in the third quarter in Downtown L.A. reflected the malaise in the DTLA submarket.

In July, the one million square foot, 52-story office tower at 777 South Figueroa Street was purchased by a Chinese investor in an all-cash deal for $120M, or about $120 per square foot.

Downtown Los Angeles closed Q3 with a vacancy rate of 32.8% and negative net absorption totaling minus 489,500 square feet, according to CBRE’s latest market report.

California’s statewide office sales volume totaled $4.2B at the end of Q3, across 159 properties encompassing nearly 17M square feet that were sold for an average price of $251 per square feet.