Office is no longer the primary force in Downtown L.A., as companies choose to exit the city’s financial center and remote work persists, according to a recent report from the Downtown Center Business Improvement District.
Vacancy across office buildings in Downtown L.A. rose to 22.6 percent in the first quarter, up from 21 percent in the fourth quarter of last year, the report found. Overall availability, which includes space up for sublease, was about 30 percent in the first quarter, according to a Savills report.
“For a while the office sector was holding stable,” Nick Griffin, the BID’s executive director, said in an interview. “Now, we’re seeing contraction on the office side.”
However, people are still living Downtown. Residential occupancy across the area increased slightly to 93.1 percent in the first quarter from 92.9 percent in the prior period, according to the BID report.
Griffin called it a “rebalancing” for Downtown L.A. — people are now coming in to live, eat and be entertained, rather than just work. For the office market, more restaurants and retail in the neighborhood could become magnets to draw employees back to their workplaces.
“If they don’t have to work here, they have to want to work here,” he said.
Those straying away from Downtown L.A. office buildings are contributing to the huge drop in office values seen both in Los Angeles and across the country.
Researchers from New York University and Columbia University have calculated that office buildings across the country will see a $506 billion drop in values by 2029.
Some of L.A.’s office buildings have already sold at a loss.
In March, Joel Schreiber closed a deal to buy Union Bank Plaza from KBS for $110 million, or about $158 per square foot. KBS purchased the building in 2010 for $208 million, or almost $300 a square foot. Bids on Shorenstein’s AON Center at 707 Wilshire Boulevard came in at a roughly 40 percent discount compared to what the building last sold for.
However, buying a building at a low price point may make a residential conversion more viable, Griffin said.
“It’s a natural conclusion that you would convert office to residential,” he said. “Adaptive reuse is in Downtown L.A.’s DNA.”