MARKET DRIVERS
The Los Angeles office market continued to face challenges in the first quarter of 2025, due in part to ongoing financial and regulatory issues, including uncertainty surrounding federal government tenancies and contracts. Some landlords are preparing for possible mass reductions in federal government employment which will impact office occupancy. Rent variations have been minimal as fewer companies are seeking to lease large spaces because of the significant number of staff cutbacks in the area.
However, many other private sector employers are continuing return to office initiatives which has contributed to a rise in office occupancy as well as tenant leasing activity in some suburban markets.
ECONOMIC REVIEW
Los Angeles prides itself on a diverse and dynamic economy, supporting a thriving creative sector and fostering a business environment across various racial and ethnic communities. Once a hallmark of the Los Angeles economy, the entertainment industry continues to experience a reduction in filming which has resulted in reduced office demand in the entertainment industry and supporting industries. The high cost of living in Los Angeles is causing labor uncertainty with some people choosing to relocate, resulting in slow population growth.
NEAR-TERM OUTLOOK
A gradual rise in Los Angeles office rents may occur as market conditions strengthen. Some initiatives are being put forth to foster more filming and entertainment activity, which would be a boon to some office submarkets such as Hollywood and Burbank. However, low gross leasing activity and widespread occupier downsizing indicate a weak Los Angeles office market expected to last at least in the medium term.
The changing market has caused institutional buyers to redistribute investments into comparable properties, thus changing the profile of active buyers to more privately held and family office investors.
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