Q2 2022 Office Market Outlook – Los Angeles
Los Angeles County’s office market took a step forward as companies continued to work to bring their people back into the office post-pandemic. With the vacancy rate inching downward, since rising in the first quarter of 2022, demand for office space remained mixed across the region in the second half of 2022. Most submarkets regained some occupancy as the overall vacancy rate decreased 20 basis points quarter over quarter to 14.2 percent, up 40 basis points from last year at this time. The average asking rent edged up from the previous quarter as new construction added close 1.1 million square feet in the first half of 2022 to the inventory. Of which most of the newly completed office space remains available.
The buildup in available office space on the market slowed in the second half off 2022 as work from home and space utilization strategies slowly encouraged the usage of office building space. Steady leasing volume this quarter, especially in the LA West office market from tech and media companies, reversed the rapid pace at which available space came on the market. This quarter, total available office space dropped below the all-time high, last quarter, to 69.7 million square feet. However, available sublease space ballooned once again, up 4.0 percent from the prior quarter and 4.8 percent year over year. Available sublease remained well above Great Recession levels at more than 9.8 million square feet. Rents remained persistently high, up 1-cent from the previous quarter and up 8-cents year over year to $3.49 per square foot, full service gross.
TRENDS TO WATCH
Completed construction continued to be added to the market, mainly in LA West. Of the 1.1 million square of newly completed office space in LA County this year, 676,947 square feet was added in LA West. The vacancy rate for the new construction built over the past two years in LA West registered 40.8 percent, 29.3 percent overall in Los Angeles County. LA County’s average asking rent for new construction inched 1.9 percent from the prior quarter, down 1.1 percent year over year, to $5.37 per square foot, full service gross.
Since the start of the year, low to mid-rise office buildings (categorized as buildings 6-stories and under) gained 1,469,065 square feet of positive net absorption while high-rise buildings (7-stories or higher) experienced 1,914,510 square feet of negative net absorption. The vacancy rate (11.8 Percent) in low to mid-rise office buildings declined while the vacancy (18.4 Percent) in high-rise buildings increased. Rent in low-mid-rise buildings increased 3-cents to $3.62 per square foot, compared to high-rise office space which saw a 5-cent drop year over year to $3.36 per square foot.
Remote work is here to stay. With many companies planning to permanently reduce office space, a flight to quality low to mid-rise office buildings, which offer open-air and walkability to ground floor amenities, is leading in the recovery.