Downtown Office Market at a Tipping Point

After several years of slow growth, the office market in Downtown Los Angeles has finally hit is stride. According to the recent report from the DCBID, the office vacancy rate has decreased by 3.4% year-over-year to 17%, a significant milestone for the submarket. In addition, rents have increased 5.3% year-over-yea to $3.66 per square foot for class-A space, leasing activity is up 25% year-over-year to 2.3 million square feet year to date and absorption for the third quarter was up 486% with 230,000 square feet of net absorption.

“You are really seeing a tipping point with office,” Nick Griffin, executive director for the DCBID, tells GlobeSt.com. “I have been predicting for several quarters now that we were going to see an acceleration similar to markets that I saw in New York several years ago, where all of the sudden absorption goes right through the roof. It is a combination of perception and reality. The market for office tenants in general is strong. There is strong corporate growth and quite a few sectors that are growing a lot, whether it is tech, media or fashion. Once the perception shifted about Downtown Los Angeles and about what it is like to office here, there has been a real acceleration. We are only seeing the beginning of that.”

In fact, Griffin expects rapid office growth in the next year with strong leasing activity and a decreasing vacancy rate, despite new deliveries. “I hate to make overly bold predictions, but I think that we are going to see the vacancy rate nose down in this coming year more significantly than we have before,” he says.

New office renovations—particularly high-rise tower conversions into creative-friendly, forward-thinking office spaces, has driven the leasing activity. “We have a hacking the high rise initiative, which is all about how the class-A towers are reinventing themselves for a new era of city living and a new era of tenants. Every single one of the class-A towers are doing a great job of positioning themselves for new types of industries and a new way of working,” explains Griffin. “They are revamping themselves and connecting to the city around them, they are doing programming that makes them more relevant and they are doing build outs that make them more conducive to creative companies. They have really stepped up their game and are delivering what the market wants.”

As tenants have arrived for these quality spaces, more and more have followed, creating the eco-system that the DCBID says will fuel more growth in the future. This is a similar ecosystem that the organization has cultivated in the retail and residential markets. “We are seeing more and more tenants recognizing that Downtown Los Angeles is a dynamic place for them to be,” says Griffin. “Tenants are looking at this area as a place to be in the mix of innovation and creativity. I think that we are going to see more and more of that. The more creative companies are down here, the more we will see others come. It is becoming a dynamic ecosystem of fashion companies and tech companies and media companies and architecture firms. That creates an appealing environment.”