L.A. office leasing activity may be slowing down, according to new research from Yardi's Commercial Café. The report shows that office leasing remained strong through 2017, but began to slow in the fourth quarter and has remained tempered through the beginning of the year. As a result, office activity in 2018 is expected to post minimal growth. Additionally, the report names Los Angeles a mid-strength market, meaning that there is strong demand but not necessarily a top market for investment activity.

“Los Angeles office leasing activity was strong in 2017 with over 12 million square feet of new deals signed; however, in Q4 2017 and Jan 2018 we have seen a slowdown trend compared to historical rates in 2016, a year that exceeded 14 million square feet of leasing activity,” Doug Ressler, a senior research officer at Yardi, tells GlobeSt.com. “Demand is highest in L.A. West, representing 33% of total leasing this year in Los Angeles. Four of the key lease transactions in fourth quarter were by co-working companies. WeWork and Spaces, signed deals totaling over 220,000 square feet in Hollywood, the Financial District in Downtown Los Angeles and Culver City. Overall vacancy was about 15% this year.”

While the city isn't a top market for office investment, its status as a mid-strength market makes it a market with strong demand, net absorption and growth rental rates. Ressler says that being gateway hub for Asia and economic diversity and growth potential are among the reasons that Los Angeles has seen an increase in price per square foot from Q416 to Q417, along with strong absorption and strong office-using employment.

But, is this enough to fuel activity through 2018, considering office leasing activity has taken a turn? Ressler says that while growth may be modest, all fundamentals remain positive. “Market fundaments remain positive, with over 4.8 million square feet of new office to be delivered. Vacancy rates will continue unchanged at 15%,” he explains. “We also anticipate, that new mixed-use, co-working space and value-add, in the central business district and the Arts district, projects will dominate and provide greater ROI potential in the market. Continued office employment growth. We expect media, and tech centers to continue to be important drivers in the LA office market. Housing and living cost continue to escalate which could move employment to the Eastern edge of L.A. County.”

Instant Insights /

L.A. Office Activity Begins to Slow

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