New Office Supply Will Test the Strength of Demand

“The Los Angeles office area has emerging supply-side issues,” according to Doug Ressler of Yardi Commercial Café, but the market has a swelling construction pipeline that could oversupply the market. New research from Commercial Café on office construction shows that 2.9 million square feet of new office product will deliver this year, and 2.5 million square feet is scheduled to deliver in the second half of the year. With a construction pipeline of this size, Los Angeles ranks 11^th in the country and third on the West Coast for office construction. This new supply could prove to test demand instead of satisfy it.

“The new supply will test the strength of tenant demand,” Ressler, director of business intelligence at Yardi-Matrix tells GlobeSt.com. “This will be especially true in tech and co-working firms. Los Angeles midtown has typically been a low vacancy/high demand markets; however, there is pressure on this model as large leasing, defined as 50,000 square feet-plus, has slowed and renewal rates are softening.”

The new office construction is largely redevelopment projects, rather than ground up construction. Additionally, there is a growing number of public projects. “We see much of the office pipeline focused on repurpose of existing structures with new supply shrinking,” says Ressler. “Many of the major public-sector projects in Los Angeles County are focused on upgrading aging facilities or preparing the County to host the 2028 Olympics. There is a longer-term ten-year effort with multiple public agencies and institutions. As of June 2018, there are nearly 20 major public-sector/institutional projects or programs in the pipeline.”