Q3 2023 Office Market Outlook – Los Angeles


Market Overview

The pandemic shutdown continues to shape the slow path to recovery for Los Angeles County’s
office market, as more companies strive to bring their employees back to the office. Elevated vacancy
rates, weak demand, and vacant new construction have compelled a reduction in asking rents to spur
occupancy. Since Q1 2023, completed office construction has added nearly 1.3 million square feet,
mostly vacant, to the inventory, but the market grapples with an influx of sublease office spaces. This
year, the increasing vacancy rates each quarter have pushed the overall vacancy rate up by 150 basis
points compared to the previous year, reaching 16 percent.

Trends to Watch

Value-seeking tenants will find opportunities in areas where available space has increased. For instance,
in LA West, 217,817 square feet were subleased in the third quarter, totaling 628,127 square feet year-to-date.
The sublease spaces sat vacant on the market for an average of 7.8 months with an average asking
rent of $3.59 per square foot on a full-service gross basis, which is 25.8 percent below the average for direct
space. The LA West submarket, burdened by more than 23.5 million square feet of available office space,
with 15.9 percent designated as sublease space (the most in the Los Angeles County), experienced a
14-cent year-over-year decrease in the published average asking rent. While LA West retained its position
with the highest rent in the region, a decline in rents played a role in a 16.2 percent increase in leasing
volume from the previous quarter. Nevertheless, year-to-date leasing volume in LA West for the third
quarter of 2023 still lagged behind last year’s figures by 18.4 percent. Currently, the LA West office market
has more than 3.7 million square feet of sublease space available. Traditionally when the LA West office
market heats up demand migrates to the South Bay. Now that demand has ebbed, available sublease
space has increased 10.7 percent year over year in the South Bay totaling 2.3 million square feet.