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August 11, 2022
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ETC... ETC... NEWS
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L.A. Area Office Market Recovery Hits Bump in 2nd Qtr 2022

7/19/22

Overview

• Leasing was more muted, reflecting concerns over the economy and more limited progress in getting employees back into the office.
• Additional space-give backs kept sublease availabilities elevated limiting the local office recovery.
• Q2 leasing activity was more evenly distributed across industries and geographies.
• Recently delivered projects and limited new groundbreakings will further reduce an already modest construction pipeline

The Los Angeles office recovery, which had begun to gain traction over the last six months, lost some of its momentum in Q2 2022 as leasing activity declined by nearly 10% over the previous quarter. Strains in the macro-economic environment coupled with delayed return-to-the office plans, led some tenants to put leasing requirements on-hold. Although space-give backs continue to moderate, additional subleases were added to the market during the quarter pushing sublease availability up slightly 10 basis points from 4.2% of total inventory to 4.3%. Despite additional headwinds, flight-to-quality remained in focus as tenants took occupancy in newly delivered projects which helped push overall net absorption slightly into positive territory.

Although the tech sector remained an import demand driver for leasing activity, some of the larger leases inked during the quarter were more evenly distributed across industries and geographies. Highlighting this, asset management firm TCW signed for approximately 140k sf at City National Plaza in Downtown’s Financial District. Dine Brands Global, a full-service dining company and franchisor of Applebee’s and IHOP, leased roughly 92k sf and will relocate its headquarters to 10 West, a newly completed project in Pasadena. In Long Beach, healthcare insurance provider Blue Shield of California signed a long-term 72k sf lease at Aero Long Beach. The firm will consolidate some of its office spaces across Los Angeles into this new location.

Outlook

Los Angeles’ highly diversified economy will position the region to better weather any further deterioration in the macro-economic environment tied to rising inflation and prolonged geopolitical tensions. Additionally, with over 1.5 msf potentially delivering through 2023, and few new projects slated to begin construction, the development pipeline will remain relatively light compared to other gateway markets.




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