REAL ESTATE NEWS

After several quarters of volatility, the 10-year Treasury yield has steadied — but capitalization rates in Los Angeles continue to climb as investors adopt a cautious approach and transactions slow, according to Sebastian Bernt, market intelligence analyst for the western region at Avison Young.

Bernt told GlobeSt.com that many property owners remain hesitant to bring assets to market as buyers seek steeper discounts to compensate for higher borrowing costs. The result, he said, is limited price discovery, with only a small number of trades in core submarkets such as West Los Angeles and Downtown. “The bid-ask spread continues to narrow slightly but remains a barrier to deal flow,” he noted.

As investors wait, some landlords are turning to property repositioning strategies to remain competitive with new construction. In areas like Culver City, Burbank, and El Segundo, owners are investing heavily in adaptive reuse and upgrades — adding outdoor amenities, wellness features, and improved connectivity to appeal to tenants looking for campus-style environments. Bernt said these redevelopments have become one of the few feasible ways to deliver high-quality space without breaking ground on new projects. “This adaptive trend reflects a broader industry shift — from expansion to optimization — as owners work to preserve value in a challenging financing and leasing environment,” he added.

Avison Young’s third-quarter office report showed that office demand in Greater Los Angeles strengthened in the third quarter of 2025, with leasing activity reaching 3.62 million square feet. While the market’s recovery remains gradual, absorption turned positive with 612,000 square feet — a sign that tenants are slowly re-entering the market. Availability ticked up to 24.7% as secondary space continued to return, and asking rents averaged $43.72 per square foot. Avison Young said this combination of leasing momentum and positive absorption, despite high vacancy levels, indicates a stabilizing market as occupiers commit to long-term space needs.

Leasing velocity in West Los Angeles rose to more than 1.1 million square feet in the third quarter, up more than 200,000 square feet from the prior period. Activity was driven by technology, media, and professional services firms targeting high-quality, well-located space. Many tenants sought modern layouts and long-term commitments in buildings with strong design and access to talent.

In downtown Los Angeles, the market is undergoing a corrective phase as average asking rents fell to $49.03 per square foot in the third quarter, reflecting a broader repricing and a wave of assets transitioning to new ownership.

JLL’s third-quarter report echoed the improving sentiment, noting that Los Angeles’s office market showed early signs of recovery despite a stable overall vacancy rate. Sublease availability dropped 26.9% year over year, including an 8.9% reduction in Class A space. Century City saw a 7% year-to-date increase in asking rents, supported by consistent tenant demand. In El Segundo, leasing momentum strengthened with several major move-ins boosting occupancy.

Among recent leases, Canvas Worldwide nearly doubled its footprint with a 68,301-square-foot headquarters deal at Ascend at Utah Campus. COSM and Varda Space also signed major leases totaling more than 122,000 square feet at 888 Douglas. Varda’s expansion followed its $187 million Series C funding round. Media, technology, and aerospace tenants led leasing activity across the South Bay.

Data from Yardi Matrix’s October 2025 national office report further underscored market movement. Los Angeles recorded a 15% vacancy rate in September, a 130-basis-point improvement from a year earlier. The average listing rate stood at $41.11 per square foot, down 4.5% year over year. Yardi reported more than 2 million square feet of office space under construction, representing about 0.7% of total inventory. As of September 30, year-to-date sales averaged $295 per square foot, with total volume reaching $2.04 billion. The metro was among 17 of the top 25 U.S. office markets showing negative growth in office-using employment as of August.

Two major transactions highlighted ongoing deal activity. Banc of California signed an 11-year lease for 40,000 square feet at 865 S. Figueroa Street in downtown Los Angeles, with CBRE’s Jonathan Dezzutti, Jacob Bobek, and Blake Mirkin representing the tenant. The bank’s name and signage will be added to the city’s skyline early next year.

In the Warner Center/Woodland Hills submarket, S&G Properties Management acquired a three-story, 62,241-square-foot office property at 5550 Topanga Canyon Boulevard for $10.05 million. The company plans to occupy part of the building for Citiguard, its security services division, while investing in interior and exterior renovations and new on-site amenities to attract tenants. Lee & Associates LA North/Ventura represented S&G Properties in the deal, with principals Darren Casamassima, Scott Romick, and Jay Rubin leading the team.

Source: GlobeSt/ALM