The office market’s weak performance is still ongoing, as owners and developers are experimenting with solutions for the sector’s future. Through the first seven months of the year, Los Angeles’ office market experienced a similar trend, according to recent data from CommercialEdge.
Office development activity cooled off, as did investments and listing rates. A few new projects came online year-to-date through July, with the largest falling in the creative office segment.
As of July, Los Angeles had 1.1 million square feet of rentable office space under construction. The metro’s development pipeline represented 0.4 percent of its total stock, down 50 basis points since March and 120 basis points below the national rate.
Compared to other gateway markets, Los Angeles stood at the bottom of the list in terms of office development. San Francisco led the ranking, with 3.8 percent of stock underway, followed by Miami (2.9 percent), Manhattan (1.6 percent) and Chicago (0.8 percent).
No new construction starts since April
Four properties broke ground year-to-date through July, comprising a total of 472,827 square feet, marking a 20.6 percent decrease year-over-year. Furthermore, no new construction starts were recorded since April.
Excluding owner-occupied assets, the largest development to commence construction was The Bradmore Group’s 42XX project in Marina Del Ray. The developer financed the 151,000-square-foot project last year with a $117 million construction loan, which encompassed senior debt from Bank OZK and mezzanine debt from Acore Capital.
Other developments that broke ground included Swift Real Estate Partners’ 146,000-square-foot office addition to the Reframe Studios redevelopment in Glendale, Continental Development Corp.’s 136,438-square-foot building for Raytheon in El Segundo, as well as Redcar Properties’ Euclid 1650, measuring 39,389 square feet and taking shape in Santa Monica.
Completions were also on a downward trend—a total of 1.4 million square feet of office space came online in the market during the first seven months of the year, down 38.7 percent year-over-year.
The largest of these was the 800,000-square-foot, two-building Second Century Project, developed by Worthe Real Estate for Warner Bros. in Burbank.
In terms of rentable office space, two completions stood out—Samitaur Constructs’ 180,548-square-foot (W)rapper Tower in Culver City, along with The Luzzatto Co.’s 107,199-square-foot The Depot, in South Los Angeles. Both properties are marketed as creative office propeties.
Leasing grinds to a halt
Although vacancy in Los Angeles’ office market remained elevated—at 14.1 percent in July—the metro’s rate was 300 basis points below the national average. L.A. fared better than most of its gateway counterparts. San Francisco’s rate stood at 21.7 percent, followed by Chicago (19.4 percent), Manhattan (17.4 percent) and Miami (12.8 percent).
Office leases were scarce, with tenants either downsizing space or relocating to more favorable locations.
In April, publisher and global media company Condé Nast relocated to a 25,000-square-foot space in the 1.4 million-square-foot ROW DTLA, within the Arts District submarket. JLL brokered the transaction on behalf of both parties.
In May, Syracuse University signed a lease for 21,377 square feet at 5250 Lankershim Blvd. in North Hollywood. DivcoWest is the owner of the 179,246-square-foot office building, having acquired it in 2021 for $92 million.
Investments slowed in the third quarter
Roughly 5.6 million square feet of office space traded in Los Angeles year-to-date through July, for a total of $1.2 billion. Investment volume dropped to less than half of the $2.7 billion recorded during the same period last year—when more than 6 million square feet traded.
Of the total amount, 4.3 million square feet changed hands in the first quarter alone, for $827 million. Investments cooled gradually after the first three months, with the top five largest sales all occurring in March. Despite the depressed transaction volume, Los Angeles still ranked third on a national level, on equal footing, on par with Boston ($1.2 billion) and behind Manhattan ($1.5 billion).
Year-to-date through July, Los Angeles office assets traded at an average of $231 per square foot, which was 17.9% above the national figure.
Among the few transactions recorded after the first quarter was the $24.7 million sale of the DYAD South Bay Campus. Borstein Enterprises purchased the 116,220-square-foot campus from Westport Capital Partners LLC.
In June, UCLA acquired an iconic office building in downtown L.A. Lionstone Investments sold the 351,189-square-foot Trust Building for $40 million, or $113.9 per square foot.
The largest sale though the first seven months of the year remained Waterbridge Capital’s $104 million acquisition of Union Bank Plaza, also in downtown Los Angeles. KBS sold the asset through its KBS Real Estate Investment Trust II.
More coworking spaces open
As of July, 2.2 percent of Los Angeles’ entire office inventory was coworking space—roughly 4.7 million square feet. Compared to other gateway markets, the metro’s flex office inventory relative to total office space stood below that of Manhattan (2.9 percent) and Miami (3.3 percent), but above San Francisco (1.9 percent) and Chicago (1.9 percent).
In April, Premier Workspaces opened a new location within the Century City submarket, at 2121 Avenue of the Stars. The company signed a lease for 14,500 square feet at The Irvine Co.’s 970,000-square-foot property. The new location offers 55 private offices, ranging from 90 to 240 square feet.