Tenants looking for office space in the Los Angeles area are in the driver's seat as vacant seats are bothering many landlords trying to fill the building with people.
The Greater Los Angeles office rental market began the year with a turbulent first quarter and historically high vacancy, as tenants' demand was sustained soft despite a more robust return office policy from managers.
A notable exception is Century City, which has experienced some of the highest rents in the West.
But across the county, office vacancy has hit a new high of 24.2%, real estate brokerage CBRE said. When leased but unoccupied “shadow” office space is considered, overall availability is over 29%. This is what is considered a healthy market balance between landlord and tenant profits.
Real estate experts hoped that at the end of 2024, more businesses would require workers to return to their desks as the leasing market, which had been delayed since the start of the COVID-19 pandemic, showed signs of recovery. Later, there was a devastating wildfire and economic uncertainty caused by President Trump's global tariffs.
Century City Center was not scheduled to open until early next year, but it is almost completely leased, according to Gary Weiss, a real estate broker at LA Realty Partners.
(Allen J. Scheven/Los Angeles Times)
“We were more optimistic towards 2025,” said CBRE real estate broker John Zanetos, who saw end-of-year leases signed by several well-sized tenants, including toy makers Mattel and Jazzwalles, in the county office market.
The wildfires in January that brought the city back to its heels put a halt on many business decisions.
Later in the quarter, the turmoil over tariffs and potential trade wars introduced another element of uncertainty, said Michael Soto, vice president of research for the Western Regions at the actual state brokerage company Savills.
Real estate analysts look “very closely” to see if there is a new hesitation in decision-making among business leaders. This could slow the initial public offering of stocks, mergers and other ventures that normally lead to office space acquisitions, Soto said.
“The anxiety has returned to the market,” he said. Some tenants “maybe slowing down decisions until the macroeconomic environment is a little more clear.”
One of the region's biggest, the downtown office market in Los Angeles continued to struggle in the first quarter, with vacancy reaching nearly 34%, with overall availability at 37%, a slightly higher than the previous year, CBRE reported.
Downtown has struggled with vacancy for decades, but since the start of the pandemic, reducing corporate office space has driven down the value of office buildings and pushed some landlords into financial stress that has struggled to hold money to attract tenants, Zanetos said.
Views of downtown Los Angeles last year. According to CBRE, the area's office market continues to struggle, reporting a slight rise in vacancies at nearly 34% and overall availability at 37%.
(Brian van der Bragg/Los Angeles Times)
Some landlord's advance fees may be paid to ensure that office space is prepared for new tenants as part of the lease agreement. Landlords are also expected to maintain their property to a level that the tenants feel is acceptable.
“There are very few buildings that can actually be traded,” he said.
These buildings are “going very well,” he says, with some leasing over 90%.
There are still potential tenants looking for space in Los Angeles County, including the Los Angeles Department of Water and Power, still looking for space to rent in Los Angeles County. DWP plans to renovate its historic groundbreaking headquarters in Bunker Hill, and will need to move to about 300,000 square feet while work is finished, he said.
“It's going to be a big shot of aggressive absorption in the office market,” he said. He refused to identify other large tenants in the market because their searches were confidential, he said.
DWP's mid-century style John Ferraro building on Hope Street was completed in 1965 and houses around 3,300 employees. DWP president Joe Lamaro said renovations and temporary employee movements are still in the planning stages.
The Los Angeles Department of Water and Power is planning to renovate the mid-century-style John Ferraro building on Hope Street, which has around 3,300 employees, said DWP president Jo Ramaro.
(Los Angeles Times)
The DWP may consider purchasing the building, Lamaro said. Last year, Los Angeles County bought the 55-storey gas company tower for $200 million. That's far less than the valuation of $632 million in 2020.
One region that actually thriving across the soft lease market is Century City, especially among lawyers and entertainment companies, including creative artist agencies, due to the strong demand, fewer vacancy and higher rents.
“Century City is an outlier and has been around for many years in terms of rent and occupancy performance,” said Gary Weiss, real estate broker at LA Realty Partners.
In the 1960s, the neighbourhood on land west of Beverly Hills, previously a backlot of a 20th century studio (now the Fox Studio Lot), has long been a favourite of law firms.
Some of them have opted to expand in Century City instead of Downtown. Among them are Latham & Watkins and Sidley Austin.
“A lot of this reflects what's happening downtown with homelessness, with increased vacancies and safety factors,” Weiss said. “And many of these companies are uprooted from downtown.”
The neighborhood has “high-quality buildings with top-notch security,” he said. “It's safe, it's clean.”
Century City is also rare in the office market in LA. This is a flashy new skyscraper under construction. The 37-storey century city centre is built by Chicago landlord JMB Realty, one of Century City's largest property owners.
One of Hollywood's biggest talent agencies, the Creative Artist Agency has agreed to become an anchor tenant for the building on Star Avenue. Other signed tenants include Sidley Austin and investment company Clearlake Capital, said real estate data provider Costar.
The Century City Centre is almost completely leased, despite not planning to open until early next year, Weiss said.
According to CBRE, the overall vacancies at Century City are 13%. Landlords are looking for nearly $7 per square foot per month compared to the county average of $4.29 per foot for high-quality office space.
Large institutional investors, like common practice, are skeptical that property values will be well valued to resell profits in five years, which has led to slower sales of office buildings.
Private buyers such as Los Angeles County and public agencies such as Los Angeles County are featured in several downtown office towers with “huge discounts,” Zanetos said.
Other private buyers are investing in fairly new buildings filled with tenants, considered low-risk investments. This month, Kingsburn Realty Capital, a Las Vegas company that caters to private investors, paid $105 million to Hollywood's Vin Street Tower, which is fully leased by Skims Body Inc., a shapewear and clothing brand co-founded by Kim Kardashian.
The building was completed in 2017 and was extensively renovated last year, the real estate agent said.
Times staff writer Matt Hamilton contributed to this report.