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Los Angeles Office Market Report

1st Quarter 2021

Posted In — Market Research | Market Report

MARKET DRIVERS

DIRECT VACANCIES and sublease availabilities across the metro continue to increase as a result of COVID-19, reaching an all-time high of 12.6% and 2.6% respectively, in 1Q21.

AVERAGE asking rental rates increased in the first quarter, concluding at $3.48/SF on a full-service basis. Yet, as sublease availabilities rise, many landlords are beginning to offer discounted rents and many concessions to lure in tenants. Currently, asking rates for new sublet space entering the market have averaged $0.25/SF less than direct space.

LEASING ACTIVITY reported a decrease of 43.36% YOY, with just over 2.6M SF leased in 1Q21. The top lease for the quarter was Beyond Meat leasing 281,110 SF at 888 N. Douglas which is scheduled to be completed later this year.

DEMAND for owner/user office buildings have increased recently as tenants who made short-term solutions during the pandemic begin to look for purchase opportunities. Employees prefer the single tenant environment when restrictions lift, and principals are able to build equity instead of paying rent on unused space.

ECONOMIC OVERVIEW

AS OF FEBRUARY 2020, the unemployment rate in Los Angeles County was at 11.5%, down from a revised 12.6% from the month prior.

COUNTYWIDE job levels increased by 47,900 between January 2021 and February 2021 with steady job additions from leisure and hospitality (39,300), accommodation and food services (32,500), and lastly restaurants (28,700).

NEAR-TERM OUTLOOK

THE LOS ANGELES office market will continue to face challenges. Vacancies and sublease availabilities will be tested in 2021 as companies will soon face a post-pandemic office world and need to quickly determine their office footprint and layout requirements. Direct asking lease rates are expected to hold firm, but with the increasing amount of sublease space becoming available, rent growth may soften in the coming months.

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