Health of LA Office Sector Depends on the Submarket

The Los Angeles office market saw demand wither in 2022. After surging in 2021, net absorption in the fourth quarter plunged deep into negative territory, crashing by nearly 246 percent year over year to end 2022 at -1.3 million square feet.

That buildup of excess office stock occurred even as deliveries of new space also plummeted by more than 70 percent last year. Accordingly, the pipeline is shrinking as investment pulls back from the sector, with the total square feet under construction dropping by more than 32 percent.

Average asking rent held up better, rising by 3.52 percent year-over-year.

Uneven terrain

The industry mantra of “location, location, location” held especially true for the city’s office submarkets last year, with some neighborhoods fairing relatively well while others crashed and burned.

Park Mile posted the city’s highest vacancy rate for the end of 2022 at 36.5 percent, followed by Mid-Wilshire’s 30.2 percent. San Gabriel Valley had the lowest rate, at 10.6 percent, followed by Los Angeles North with 17 percent.

The Los Angeles North submarket experienced a catastrophic year-over-year plunge in fourth-quarter net absorption, which plummeted from 3,304 square feet in late 2021 to -413,053 square feet by the end of last year.

South Bay was riding high at the end of 2021 with a net absorption of 249,639 square feet, but that figure dropped to -12,707 square feet in the fourth quarter of last year.

Only two L.A. submarkets experienced a year-over-year gain in net absorption. In Mid-Wilshire, the figure swung from -50,874 square feet in late 2021 to 2,337 square feet at the end of last year. In San Gabriel Valley, the upswing was from -6,183 square feet to 53,506 square feet.

The city’s largest submarket, West Los Angeles — which topped the markets in 2021 with a net absorption of nearly 400,000 square feet — saw a decline last year, but its fourth-quarter 2022 net absorption of 253,784 square feet was the highest in the city.

West Los Angeles also boasts the highest Class A premium, with tenants paying on average 23.23 percent more for new space than for Class B offices. South Bay follows closely with a premium of 23.1 percent.

In Park Mile, however, the Class A rent differential is actually a discount. Prime office space there actually goes for 4.78 percent less than the Class B variety. But things do appear to be getting better for Class A in Park Mile — in 2021, the area’s “Class A discount” was more than 12 percent.