Office Demand to Cool in 2018

Office demand started to cool at the end of 2017, but it may be just the beginning for the office market. A recent quarterly report from Savills Studley showed a drop in office leasing activity at the end of last year. The slowdown also led to a decline in investment sales, and has encouraged some investors to look outside of the California market for opportunities. This year, expect to continue to see office activity slow as a result of slow employment growth, corporate restructurings and an increase in sublease space.

“Given the nearly flat Los Angeles office-using employment growth of .8% in 2017 as compared to the national average of 2%, we could continue to see the demand for space cool off,” Matt Brainard, a senior director at Savills Studley, tells GlobeSt.com. “This, coupled with the anticipated corporate restructurings ahead of us in the entertainment industry, could contribute to the continued slowdown as well as an increase in sublease opportunities.”

The entertainment industry along with media and tech companies have been the driving force behind L.A.’s office activity, especially on the highly sought-after Westside market. Downtown as well has been attempting to attract these types of tenants to the market. So, it is no surprise that the slowdown is coming from more traditional tenants. “The slowdown is more apparent among law firms, banks and business services firms than creative tenants,” says Brainard. “Although, with significant digital media players, like Amazon, Netflix, Hulu, disrupting the television industry, we anticipate seeing many of the traditional entertainment companies needing to pivot, which could include downsizing and shedding surplus space.”