Office leasing continued to struggle in the first months of 2021, according to a report from Savills research.
In Q1 2020, leasing totaled just two million square feet. That was a 49.1% decline from the four MSF in Q1 2020 and 42.4% lower than the previous five-year quarterly leasing average of 3.5 MSF. Q1’s total was also below the 2.1 MSF of leasing activity reported in Q4 2020.
Still, there were some glimmers of hope in Q1, in addition to mass vaccinations and the economy reopening. Beyond Meat and the County of Los Angeles signed large leases in El Segundo and Torrance, respectively. Additionally, Savills Research reported that space touring has increased, and leasing activity is expected to follow as the year goes on.
El Segundo County was the most active area with 42.6% of major transactions. Additionally, retail tenants represented 34.6% of significant transactions by square footage.
Tenants will have plenty of options in both the sublease and direct availability categories, with market-wide availability increasing to a new decade-long high of 23.6%, according to Savills Research. Overall availability hit its highest level since 2009 at 23.6%, as it increased 110 basis points over Q4 2020.
The arrival of sublease space helped drive this increase, according to Savills research. Overall, sublease inventory rose by 91% to more than 9.0 MSF since the pandemic began. The short-term development pipeline also added new direct space to the market.
Even with the additional space on the market, asking rents increased to $3.85 per square foot per month, which is a 2.9% increase over the last quarter. However, Savills research says this is misleading since landlords will need to get aggressive to court new tenants. Parking abatement and contraction rights are among the concessions that they are offering.
While LA County has higher unemployment (11.5%) than both California (8.5%) and the US (6.2%), Savills research says loosening COVID-19 restrictions and pent-up demand offer hope for the future. Still, there is a glut of office space on the market and the climate should be tenant-friendly for the next 18 to 24 months.
Other reports show an improving situation in Los Angeles. According to the national VTS Office Demand Index, which tracks tenant tours, both in-person and virtual of office properties across the nation, Los Angeles has almost regained its losses since the beginning of the pandemic.