Los Angeles Office Market
Sidley’s leases hint at a few trends shaping the greater market. Namely, traditional tenants are committing to larger trophy space in Century City while downsizing footprints and exiting distressed buildings in Downtown LA. Century City is emerging as Los Angeles’ preferred CBD. Total vacancy and availability continued to climb to new highs, reaching 22.8% and 27.8% respectively. Sublet availability fell by 10bps for the second consecutive quarter, settling at 5.0%. 46% of Greater Los Angeles’ office inventory consists of buildings with sub-80% occupancy. Buildings with lower occupancy thresholds tend to struggle to generate positive NOI, which, in turn, makes it difficult to support debt (assuming debt is present on a given building).
Download Los Angeles Office Market Report 4Q23Los Angeles Industrial Market
Tenant demand remains crimped by high capital costs, cooling retail sales projections, inflationary hurdles and occupier cost-cutting initiatives. The latter has led to more sublet availability, which presently totals 9.1 MSF; a 13.5-year high. Net absorption was negative for the sixth consecutive quarter, while total vacancy climbed to a 12-year high of 2.6%. Net absorption totaled -11.8 MSF in 2023, the market’s worst annual showing ever. Class A space remains desirable, but rents remain elevated. Lease term lengths are below their historical average as tenants wait for further declines in rental rates. Landlords are offering more in the way of concessions as vacancy and sublet availability rise.