Large Renewals Lift L.A. Office Leasing

There were a few signs of improvement in the office market in Greater Los Angeles in the first quarter, but you have to drill down into some gloomy numbers to find them.

On the negative side, the vacancy rate in Greater L.A. remains at nearly 24%. An additional 2.4M SF of space was put on the market in the first quarter, increasing total office availability 110 bps to another record high of 28.3%, according to the latest market report from Colliers.

The office market in Los Angeles recorded its third consecutive quarter of negative net absorption that was more than minus 1M SF—the Q1 tally dropped to minus 1M from the Q4 total of 1.12M—but the first quarter tally includes more than 424K SF of new supply, whereas no new supply arrived in the fourth quarter.

Leasing activity topped 3.1M SF in Q1, primarily driven by large renewals from the tech, media and entertainment sectors, but the forecast calls for continued high levels of availability as another 1.7M SF of new supply moves through the pipeline.

“Rent growth is expected to soften as total office availability is forecasted to remain elevated in 2024,” Colliers said.

Nearly half of the leasing activity in Los Angeles occurred in West Los Angeles where Snap, Endeavor and Lionsgate secured large renewals totally more than 870K SF. Snap is consolidating its L.A. footprint, relocating smaller offices in Venice and Santa Monica.

Although leasing activity increased from the fourth quarter, the 3.1M SF of leasing velocity in Q1 was still lower than the pre-pandemic quarterly average of 3.3M SF.

“Office demand has been strongest among quality buildings built after 2015 with tenants now focusing on a flight to the newest construction built after 2020,” the report said.

Greater Downtown, which includes the Arts District and Little Tokyo, continues to be plagued by the lowest office occupancy levels, with office availability of about 32%. New construction in Greater Downtown slated for completion by the end of 2024 is expected to keep availability elevated.

Net absorption in South Bay was positive for the second consecutive quarter with 148K SF of occupancy growth, mainly in El Segundo and the 190th Street Corridor.