Fourth Quarter 2024
Early Signs of Stabilization in LA County’s Office Market as Q4 2024 Vacancy Rates Reach Trough
The wildfires could serve as a catalyst for the office market, driving new opportunities for adaptive reuse.
Vacant office space offers an opportunity to be repurposed as temporary facilities for schools and businesses impacted by the wildfire.
MARKET OVERVIEW
The recovery of Los Angeles County’s office market remains sluggish, impeded by rising vacancy rates and tepid demand. Despite an increase in unoccupied new construction, landlords are hesitant to lower asking rents, creating challenges in spurring occupancy.
In 2024, completed office projects added 808,743 square feet of space to the market—most of it still vacant. The market also continues to grapple with a substantial influx of sublease office space, contributing to elevated availability.
Although vacancy rates climbed steadily throughout the first three quarters of 2024, the fourth quarter marked a slight improvement, with the overall vacancy rate dipping by 10 basis points quarter-over-quarter to 16.8%. However, this figure remains 60 basis points higher than the previous year. The market has begun to show signs of stabilization, as a declining accumulation of vacant office space suggests the market may have reached a trough.
For much of 2024, available office space peaked at a record 78.2 million square feet, marking 10 consecutive quarters of rising vacancy. This quarter, however, availability declined for the first time in years, though it remains well above levels seen during the Great Recession.
The surge in vacant sublease space is slowing but remains significant. Sublease vacancy increased by a modest 1.3% quarter-over-quarter yet remains 7.3% higher year-over-year, reaching 7.3 million square feet—levels last seen during the Dot-Com Bust. While sublease space peaked in mid-2024, it has since begun to taper off.
Despite these headwinds, asking rents have remained unyielding. The average asking rent declined by only 1.7% quarter-over-quarter to $3.42 per square foot on a full-service gross basis and remained flat year-over-year. Downward pressure on rents stems from a 12.3% decline in year-to-date leasing activity compared to 2023.
TRENDS TO WATCH
Tenants seeking value will continue to find opportunities in buildings with vacant sublease space. While sublease availability has come down from its peak, it remains elevated and poised to attract demand. In the fourth quarter of 2024, tenants subleased 319,968 square feet in Los Angeles County, bringing the annual total to 1,309,984 square feet—a 21.9% decline in subleasing activity compared to 2023.
The trend of tenants offloading excess square footage through subleasing is showing signs of improvement. While a significant amount of sublease space remains available, the 4.0% quarter-over-quarter decline suggests the market is starting to rebalance. Year-over-year, sublease availability remains 4.5% higher, but key office markets are beginning to see resolutions in sublease deals.
Looking ahead, sublease activity is expected to continue trending positively as tenant demand helps clear the market. In 2024, subleasing reached 668,764 square feet in LA West, 144,891 square feet in South Bay, and 138,872 square feet in the Central market (including Downtown). These regions also experienced quarter-over-quarter declines in available sublease space: 3.6% in LA West, 6.7% in South Bay, and 11.8% in the Central market. This momentum is likely to carry into 2025, driven by improving tenant confidence and strategic space planning.
As subleasing activity gains traction, the average asking rent for sublease space is expected to remain competitive, currently at $2.83 per square foot—a 17.3% discount compared to direct space. Landlords will likely respond cautiously to this competition, balancing rent adjustments with the need to preserve property values.
The broader office market is undergoing a pricing recalibration that will influence 2025 dynamics. The annual average cap rate for office properties sold in 2024 increased by 60 basis points year-over-year to 6.2%. The average sale price per square foot declined to $337—20.6% lower than Q4 2023. Year-to-date sales volume fell 37.0% to $1.9 billion, marking the second consecutive year of decline.
As the market navigates this trough, signs of stabilization are emerging. These trends are expected to persist into the coming year, laying the groundwork for a more balanced office market in Los Angeles County. The evolving dynamics in subleasing, tenant demand, and pricing adjustments will shape the trajectory of recovery, offering opportunities for tenants and landlords alike.
Meanwhile, officials at Palisades Charter High School—damaged in the Palisades fire last week—are urgently seeking temporary classroom spaces or campuses available for lease or donation. They are also looking for large indoor and outdoor spaces suitable for hosting nearly 3,000 students and teachers from more than 110 zip codes. This pressing need provides a unique opportunity for property owners to support the community while addressing current market vacancies.
