Los Angeles' office market has taken a hit in trade wars, fires and economic uncertainty

Tenants looking for office space in the Los Angeles area are in the driver’s seat as the vacancy plagues many landlords trying to fill the building with people.

The rental market for the Greater Los Angeles office began this year with turbulent first quarters, while historically high vacancy rates, despite continued softer tenant demand, despite stronger return policies by managers.

Century City is a notable exception, which is experiencing strict occupancy rates and the highest rents in the West.

Real estate brokerage firm CBRE said, however, office vacancies in the county reached 24.2%. When considering the “shadow” office space that is leased but not occupied, the overall availability is over 29%, about three times the healthy market balance between landlord and tenant interests.

Since 20024 lagging behind the 1924 rental market, real estate experts hope to do better by the end of 2024, as the rental market began to lag behind, showing signs of recovery, including a growing number of companies calling for workers to return to their tables. Then there are the devastating wildfires and economic uncertainty caused by President Trump’s global tariffs.

“We are entering 2025 and we are more optimistic.

January's wildfires beat the city's heels, which put many business decisions on hold.

Michael Soto, vice president of research at Western Real State Brokers, said that later this quarter, confusion over tariffs and potential trade wars introduced another uncertainty.

Real estate analysts are being “very close” to see new hesitation among business leaders, which could slow down initial public offerings of stocks, mergers and other businesses, which often lead to office space acquisitions, Soto said.

“Anxiety is back in the market,” he said. Some tenants “may slow down their decisions until there is more clarity in the macroeconomic environment.”

CBRE reported that the office market in downtown Los Angeles is one of the largest in the region, continuing to struggle in the first quarter, with vacancy rates reaching 34% and overall availability at 37%, slightly higher than the same period last year.

Zanetos said companies have struggled with vacancies since the pandemic began, but the company’s cuts in its office space have helped drive the value of office buildings and put some landlords in such financial pressure that it’s hard for them to get the money to attract tenants.

Views of downtown Los Angeles last year. CBRE reported that the area's office market continued to struggle with vacancy rates reaching nearly 34% and overall availability at 37%, slightly higher than the same period last year.

(Brian van der Brug / Los Angeles Times)

One of the upfront fees for landlords is to pay for office space for part of their lease agreement, preparing for new tenants. Landlords should also keep their property at a level acceptable to the tenant, which can be a challenge when the landlord is in a shaky financial situation.

“Very few buildings can actually be traded,” he said, because they can provide tenants with the financial concessions they need.

He said the buildings were “very well done” and some were rented over 90%.

Zanetos said there are still potential tenants looking for a lot of room for rent in Los Angeles County, including the Los Angeles Department of Water and Electricity. He said DWP plans to renovate its historic landmark headquarters in Bunker Hill and requires about 300,000 square feet of range when the work is completed.

“It will be a huge shot of positive absorption in the office market,” he said, refusing to identify other large potential tenants on the market because their searches are confidential.

DWP's mid-century-style John Ferraro building on Hope Street was completed in 1965 and has approximately 3,300 employees. DWP Representative Joe Ramallo said the renovation and accompanying temporary relocation were still in the planning stage.

DWP Representative Joe Ramallo said the Los Angeles Department of Water and Electricity plans to renovate the mid-century-style John Ferraro building on Hope Street, which has about 3,300 employees.

(Los Angeles Times)

Ramallo said DWP could also consider buying a building. Last year, Los Angeles County purchased the 55-storey gas company tower for $200 million, well below its 2020 appraisal value of $632 million.

In fact, the community that flourishes throughout the soft-leasing market is Century City, where there are few vacancies and high rents because of the strong demand, especially among lawyers and entertainment companies including creative artists’ agents.

“City of Century is an outlier and has been in the performance of rent and residence for years,” said Gary Weiss, a real estate agent for the real estate agent.

Weiss said the community was created on land west of Beverly Hills in the 1960s, a neighborhood formerly the backdrop of 20th-century studios (now Fox Studios lot) and has long been a law firm favorite, and that trend has accelerated since the pandemic.

Some of them chose to expand in Century City over downtown for years, he said. These include Latham & Watkins and Sidley Austin.

“Most of this reflects homelessness, vacancy and security factors,” Weiss said. “So many of these companies are uprooted from downtown.”

The community, he said, “has high-quality buildings with first-class safety.” “Safe, very clean.”

Century City is also rare in the office market in Los Angeles, a flashy new high-rise construction. This 37-storey downtown Century was built by Chicago landlord JMB Realty, one of Century’s largest property owners.

The agency of creative artists is one of Hollywood's largest talent agencies, and he agreed to be the anchor tenant for the Star Avenue building. Costar, a real estate data provider, said other signed tenants include Sidley Austin and investment firm Clearlake Capital.

Even if it is not planned to open until early next year, downtown Century is almost completely leased, Weiss said.

CBRE says the overall vacancy in Century City is 13%. Landlords demand nearly $7 per square foot per month, while the county averages $4.29 per foot.

Sales of office buildings slowed in part because of skepticism among large institutional investors that property values ​​will be enough to resell them in a profitable way in five years, a common practice.

Zanetos said private buyers or public entities such as Los Angeles County have already picked up some downtown office buildings at a “huge discount” and the cost of building similar new buildings is the cause.

Other private buyers are investing in fairly new buildings full of tenants that are considered low-risk investments. This month, Kingsbarn Realty Capital, a Las Vegas company that caters to private investors, paid $105 million for Hollywood's Vine Street Tower, a fully leased by Skims Body Inc., a Shapewear and Clasting brand co-founded by Kim Kardashian.

Real estate agent Newmark said the building was completed in 2017 and was extensively renovated last year.

era staff Author Matt Hamilton contributed to the report.