REAL ESTATE NEWS

Los Angeles is seeing the first signs of a longer office recovery. While improving supply-side dynamics and demand tailwinds are supportive, the market will still need time for a full re-equilibrium of leasing velocity, tenant relocations/upgrades, and loan maturities.

This won’t be as dramatic a recovery as what is going on in San Francisco, according to Danny Alvarez, vice president of credit originations at BridgeInvest. He told GlobeSt.com that he does expect the LA market to have a more gradual recovery, as aerospace, electric vehicle and clean energy legislative bills were created to spur business.

“We are seeing incremental inbound interest and financing momentum for Los Angeles office assets – though it remains selective rather than broad-based,” Alvarez said.

“From our vantage point, senior-secured lending for office remains cautiously optimistic, but as occupancy dynamics improve and sublease availability declines, lenders are becoming more comfortable with differentiated office assets in strong submarkets.”

Alvarez said BridgeInvest believes dynamics will continue to improve as near-term state-level policies (such as California’s expanded Film and Television Tax Credit Program 4.0), as well as major global events, take place in Los Angeles, such as the FIFA World Cup, the Super Bowl and the Summer Olympics.

In terms of asset types and submarkets, BridgeInvest's focus today is on Class B+ to A+ office assets in infill/mature submarkets where tenant fundamentals (especially in media, tech and aerospace) remain relatively resilient and in desirable locations where employers and their employees want to be.

Prime examples include 1601 Vine in Hollywood, 345 N Maple Dr. in Beverly Hills and the handful of assets that traded in Playa Vista/West Culver City.

“For lending purposes, the key underwriting pivot is flight-to-quality,” Alvarez said.

“As sublease availability in Class A product tightens, lenders are increasingly pricing in a bifurcation between high-quality and commodity/suburban office, where the latter remains extremely difficult to finance.”

Longer Days on the Market

One issue is that office assets in LA are experiencing longer days on the market. While Michael DeGiorgio, CEO and founder of Crexi, admits this to be the case, lease rates have remained somewhat steady and selective demand for larger space still exists, reflecting a market that is balancing supply and demand.

“Over the past year, we’ve seen tenant demand cool, leading investors to reassess pricing strategies, which is creating a more deliberate and transparent leasing environment," DeGiorgio told GlobeSt.com.

“Looking to 2026, we expect this trend to continue as a wave of lease expirations from previous cycles comes due. This will create opportunities for tenants to negotiate favorable terms and for investors to strategically position their portfolios, ultimately setting the stage for a more resilient market that rewards thoughtful decision-making.”

Century City Shows Strength

David Fan, JLL senior director of research, told GlobeSt.com that one LA submarket, Century City, with its top-quality space and location, continues to be strong. Direct vacancy dropped from 9.8% to 8.8% quarter-over-quarter and quoted rent rose 7% year-to-date in the area. El Segundo, Calif., also emerged as a star performer behind three deals: Marketing agency Canvas Worldwide signed a 68,301-square-foot headquarters lease at the Ascend at Utah Campus in El Segundo, nearly doubling its footprint.

COSM, an immersive technology company and microgravity space manufacturing firm Varda Space both leased 67,725 square feet and 54,749 square feet, respectively, at 888 Douglas, a former aerospace manufacturing facility that has been repurposed as a creative office campus. Varda’s new lease commitment follows its $187 million raise in Series C funding in July.

“Perhaps the COSM deal is less surprising considering the robust capital raising activities we have witnessed in the aerospace/defense sector, which totaled nearly $700 million year to date and already double the amount for the whole of 2024,” Fan said.

Sublease availability has been shrinking across Los Angeles by 21.2% over the last four quarters, from 10.3 million square feet to 8.1 million square feet as subleases expired or were withdrawn, Fan said.

Class A sublease availability dropped 8.9% during the third quarter, while Class B sublease levels remained unchanged, pointing to the continued demand for higher-quality space.

Source: GlobeSt/ALM