Office leasing has slowed and rents have fallen across the Los Angeles metropolitan area, with the sector’s struggles expected to intensify through the rest of the year.
About 2.7 million square feet of office leases were signed across Los Angeles County in the second quarter, down 18 percent from the previous quarter, Commercial Observer reported, citing a Savills report.
Before the 2020 pandemic, tenants routinely leased more than 4 million square feet of office every three months.
“Leasing activity is primarily expiry-driven as occupiers continue to focus on cost management,” Savills said.
Of the top 10 office leases signed between April and June, only one was for a new tenant location via a sublease deal. Three of the top 10 were for expansions.
Average rents across the Los Angeles region fell to $3.90 per square foot from $3.94 per square foot last quarter. At the same time, average Class A rents increased 7 cents per square foot to $4.10.
“The Los Angeles office market remains divided, with some submarkets, such as Century City, experiencing historically high asking and effective rents, while softer markets, such as Downtown Los Angeles, are experiencing declining effective rents due to increasing landlord concessions,” the Savills report said.
Rising borrowing costs are expected to cause more Los Angeles office landlords to default on loan payments and surrender properties to lenders by the end of the year.
Savills said this would increase negative pressure on rentals and lead to further “flight to quality” and “flight to capital” as tenants seek properties without the burden of debt.
The “polarisation” between the haves and have-nots may mean more landlords find their properties no longer competitive and consider converting them into offices or redeveloping them, the report added.
The Observer reported that the top five leases for the quarter were on Los Angeles’ west side, including three in Century City. Terms of the leases were not disclosed.
The largest lease was by Universal Music Group, which renewed its lease for 225,800 square feet at 2220 Colorado Ave. in Santa Monica. Second was a 98,800-square-foot lease by law firm Latham & Watkins at 10250 Constellation Boulevard in Century City.
The third was a deal for FPM Development to sublease 94,100 square feet at 3101 West Exposition Boulevard in Culver City.
Dana Bartholomew
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