Downtown Los Angeles office market reports
Q1 2023
Recovery rate
- Return-to-work strategies are quickly becoming the norm as some of the largest employers announcing that employees are required to be in the office at least 4 days a week (e.g. JPMorgan and Disney).
- Touring and leasing activity got off to a slower start but remains relatively strong compared to other surrounding submarkets.
Office supply
- Overall vacancy in Greater DTLA’s 46 msf registered at 28.2% at the end of the first quarter, up 1.4% from the quarter prior.
- Within the approximate 30 msf Central Business District, overall vacancies registered at 26.4%, up 0.7% from Q4 2022
- There were no new deliveries to announce in the first quarter. Currently, there are 508k sf under construction, primarily within the Arts District and Chinatown submarkets.
Office demand
- Leasing activity is off to a slow start in the first quarter as companies continue to downsize their office footprint. 227,782 sf was leased at quarter end, down 27% from the prior quarter.
- Since the pandemic began, absorption levels have remained in the red with Q1 2023 reporting net negative absorption of 270,126 sf which is actually lower than the 350k sf of negative absorption in Q1 2022.
- Average square feet of lease sizes continue to decrease as expected as office requirements are tailored to accommodate hybrid work schedules. On average, leased square feet are at 3,796 sf compared to Q42022 when leases averaged 3,911 sf.
Rental rate trends
- Office rental rates continue to slightly decrease to $46.00 psf full service gross (as compared to its peak of $46.32 reported in 2021).
- Class A and Trophy buildings continue to offer generous concession packages in order to attract tenants. Although the rate of growth of concession packages has begun to moderate considerably, tenant improvement allowances remain at high levels, with some landlords signing leases with T.I.’s of up to $129 psf and 12 months free rent on 10+ year new deals (for gut-and-rebuild space).
Capital markets
- Due to elevated interest rates and investor/lender pessimism towards office space in general, sales marketing and closed transactions in Downtown have been volatile.
- However as a result of Los Angeles’s new ULA Tax which began on April 1, 2023, two prominent sales were finalized in the quarter. Properties sold between $5m-$10m and $10m and above will be taxed at 4% and 5.5%, respectively.
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