LA Office Market Ends 2022 on a Low Note

The L.A. office market did not kick off 2023 with a bang, but with a slow fizzle.

About 2.9 million square feet of office space was leased in the fourth quarter of 2022, dropping 19 percent from 3.6 million square feet during the same period in 2021, as remote work continues to pummel demand, according to a report from Savills.

Leasing also dropped 8 percent from the third quarter of 2022, when about 3.1 million square feet of office space was leased up.

Demand is expected to remain low in 2023, given the thousands of layoffs across tech companies, huge swaths of office space on the market for sublease and companies pausing their searches for new space, Savills said in its report.

Downtown L.A., once a hub for financial and law firms, is now seeing huge empty swaths across its skyline. Almost 30 percent of all office space across Downtown L.A. was available in the fourth quarter. Before the pandemic, about 23 percent of office space was available for lease.

Signs of distress loom around a number of office properties in Downtown L.A. An entity affiliated with Starwood Property Group recently bought the Broadway Trade Center for $200 million through a foreclosure. KBS has extended deadlines to close on its sale of Union Bank Plaza to an entity owned by Joel Schreiber — also the former owner of the Broadway Trade Center.

Most companies aren’t looking to expand into new space right now. Only one of the 10 largest office leases signed in the fourth quarter was for new space, according to Savills. The rest were renewals, with one extension and two relocations.

Western Asset Management’s 185,000-square-foot renewal at 385 East Colorado Boulevard in Pasadena was the largest deal signed during the period.

Despite high availability, landlords are barely budging on asking rents though. The average monthly asking rent for top-of-the-market office space was $4.05 per square foot from October through December, down 1 cent from the prior period.

Century City and Santa Monica remain L.A.’s most expensive office markets, with average rents at $5.88 and $5.85 per square foot, respectively.