12 Mo Deliveries in SF
0 .9 M
12 Mo Net Absorption in SF
( 0 .1 M)
12 Mo Rent Growth
– 0 .7%
12 Mo Sale Volume
$ 0 B
The Los Angeles office market continues to see conditions deteriorate as a result of the impact of the coronavirus pandemic. Vacancies have increased dramatically since the onset of the pandemic, and rental rates continue their trek south since a peak at the beginning of 2020. Sublease space has spiked in recent quarters and is currently at an all-time high for the market.
Pre-pandemic, tech and entertainment firms were key drivers of leasing demand during the past several years. Many tech firms are now facing pains, as blocks of sublease space put on the market last year by this cohort of tenants in Silicon Beach suggests all is not well for the sector. The entertainment industry also supported robust demand, with major studios and the digital upstarts in the midst of a content production arms race. While leasing activity may be subdued by many media tenants for the near term, Netflix made big news this past September by signing the largest lease of 2020 in the L.A. metro, committing to 170,000 SF in Burbank.
The Los Angeles office market is unique among major markets nationally for the decentralized nature of its office stock. This is a product of the sprawling nature of the metropolis as well as its well-earned reputation for having some of the nation’s worst traffic. Companies need to be strategic in where they locate.
The most prestigious office locations have long been on the Westside. Addresses in submarkets such as Century City, Beverly Hills, and Brentwood evoke a certain cachet and typically attract more traditional and image- conscious tenants. Heading west from those submarkets takes one to Silicon Beach, Los Angeles’ tech epicenter, which includes Santa Monica, Venice, Marina Del Rey, and Playa Vista.
Current office construction levels in the L.A. metro are elevated relative to the past 25 years. Projects with little pre-leasing may be hard-pressed to secure tenants in the current leasing environment.
Office sales volume in L.A. during 2020 was notably below levels seen during the previous several years. Some investors have taken a wait-and-see approach since the onset of the pandemic. Average market pricing peaked at the beginning of 2020 and has seen little movement since. Several recent large transactions of higher-quality assets garnered strong pricing and suggest discounts may not become the norm for all office sales in L.A. post pandemic. Looking ahead, it’s uncertain to what extent pricing could be impacted longer term. Many are debating how office tenants will utilize space in the future.