DTLA Office Vacancy Rate Climbs to 25%
As a result of new office deliveries and reduced demand from remote work, the vacancy rate is up 300 basis points year-over-year.
The Downtown Los Angeles office market has yet to find its footing after the pandemic. In the third quarter, the office vacancy rate climbed to 25%, up 300 basis points from the third quarter 2020, according to research from Cushman & Wakefield.
As a result of remote work, 225,342 square feet of office space was vacated in the third quarter, a massive contributor to the increased vacancy rate. There was a paltry 163,924 square feet of leasing activity, but it did offset the move outs, resulting in negative 83,972 square feet of absorption. For the year, the market has negative 749,000 square feet of absorption. Despite the sluggish leasing activity, office rents increased to $45.96 per square foot.
The CBD is fairing somewhat better. The submarket has a 23.3% vacancy rate, a 160 basis point increase from the following year and only 50 basis point increase from the previous quarter. Leasing activity is down 30% year-over-year, but it is still down significantly from pre-pandemic activity. There was only one major lease deal above 50,000 square feet during the quarter, Executive Office for Immigration Review renewed its 77,678-square-foot, multi-floor lease at the City National Bank Building. For new leases, InStride signed a 23,234-square-foot lease at The
Bloc. Year-to-date, leasing activity has totaled 337,858 square feet.
Like the larger market, rents continued to climb despite the poor leasing activity. In the third quarter, lease rates increased 30 basis points to $45.21 per square foot. Class-A rents were up 40 basis points to $46.70 per square foot.
The non-CBD area had a similar story. For the fifth consecutive quarter, leasing activity fell below 100,000 square feet. In the third quarter, only 61,003 in lease transactions closed, and year-to-date, the market has only recorded 199,204 square feet in leasing transactions, down 21% year-over-year and 83% from the third quarter 2019. Unlike the CBD, the average rent fell to $47.66 per square foot during the quarter.
This has been the consistent narrative of the Greater Los Angeles office market this year. In the second quarter, Avison Young research showed that the office vacancy in L.A. has increased to 17.8% as rents tumble and concessions rise. The metrics show that tenants are exiting office space—not moving to new locations. In the second quarter, research from Marcus & Millichap forecasted that office vacancy in the Greater Los Angeles area will grow 160 basis points this year to 18.5%, and office rents will fall 1.4% to $37.50 per square foot.