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LA’s office market hasn’t even started to recover
Vacancy increased in first quarter across all submarkets except Tri-Cities
While the rollout of coronavirus vaccines offers a sign of hope for Los Angeles’ office market, the first quarter of 2021 was another one dragged down by the pandemic.
Vacancy increased in all submarkets across Los Angeles County besides the Tri-Cities, according to a report from CBRE.
Leasing volume fell to 3.1 million square feet compared to 5 million square feet in the first quarter of 2020. Net absorption was around 1.53 million square feet.
Overall vacancy countywide was 17.2 percent. In terms of submarkets, the South Bay, Hollywood/Wilshire Corridor, Downtown and Downtown East posted higher vacancy rates than the countywide average. Downtown East had the highest vacancy rate of all submarkets at 40 percent flat.
Not only did tenants lease fewer square feet in the quarter, but tenants put up more sublease space up for rent. Around 720,000 square feet of sublease space came on the market from January through March following a brief fourth-quarter slowdown in listings.
Sublease availability has nearly doubled from 3.8 million square feet a year ago to 7.4 million in the recently ended quarter. CBRE projects that the pace of new listings will slow down because “many companies” are planning to return to offices in the second and third quarters.
There is some positive news, however. Unemployment in L.A. County decreased 1.8 percentage points from January to February. While many more people are unemployed now than before the pandemic, the overall unemployment rate is down to 10.7 percent from a peak of 20.8 percent last May.
Three of the five largest leases signed in the first quarter were renewals. A 12-year deal signed by Beyond Meat for 280,000 square feet at Hackman Capital Partners’ 888 Douglas property was the largest in the first quarter. The plant-based food maker negotiated a year of free rent and a $100 per square foot allowance for improvements.
Three office buildings were completed in the first quarter, bringing 888,803 square feet to the market. About 6.2 million square feet is under construction.
CBRE forecasts that the office market will begin to recover by 2023, but not for vacancy to get back to where it was by then. Savills predicted earlier this year that asking rents will decline given the “abundance of options” open to tenants.