REAL ESTATE NEWS

The Los Angeles investment sales market for office is particularly coming off a year of recovery. Across all sectors in the market, 349 transactions were closed, totaling $4.9 billion in volume in 2025, according to a new Avison Young report.

This represents an annual increase of 11.1% in deal count and 21.8% in dollar volume cumulatively in office, industrial, retail, multifamily and development compared to 2024.

Meanwhile, activity moderated in the fourth quarter compared with the previous three months, with a 20.5% decrease in transactions and a 25.7% decrease in volume. Despite this near-term pullback, full-year growth underscores a market progressing steadily toward gradual normalization.

Q4 2025 investment was marked by cautious capital deployment, rising office vacancies and stabilizing industrial rents. Investors are balancing short-term market corrections with long-term confidence in LA's strategic importance as a logistics and business hub.

Avison Young Senior Market Intelligence Analyst, Marco Chung, told GlobeSt.com that what surprised him most was the sheer dollar volume and transaction count still being executed in the office sector despite its clear risk premium. The sector saw $3.67 billion across 214 deals in 2025.

"Given the narrative of 'office apocalypse,' one might expect near-paralyzed activity," Chung said.

"Instead, the data reveals a market in active, albeit distressed, transition. This volume suggests significant capital is actively working to redefine the office sector's future—whether through discounted acquisitions for conversion, bets on prime "trophy" assets, or vulture investing."

Chung said that the high cap rates aren't deterring all investment; they are attracting a different profile of investor seeking higher returns for calculated risks.

"This indicates the LA office market isn't dormant but is undergoing a complex and capital-intensive repricing and repositioning process," according to Chung.

Forecast for Investment Volume Leaders

In 2026, Chung expects the multifamily and industrial sectors to remain the top two asset classes by investment volume.

"Multifamily will remain the leader due to its deep-seated fundamentals," Chung forecasted.

"LA's chronic housing shortage and high barriers to new supply create a durable tailwind for demand. The 2025 cap rate compression shows unabated investor appetite, and as interest rates potentially stabilize, this sector is best positioned to attract consistent capital flows."

He said that the industrial sector is poised for continued and potentially increased investment. The 5.06% lower-bound cap rate is the tightest in the market, showing extreme demand for top-tier assets.

"The drivers—supply chain robustness, inventory buffer strategies, and e-commerce growth—are structural, not cyclical," Chung said.

"Investors will continue to allocate heavily to this 'essential infrastructure' of the modern economy."

He said that a potential dark horse for increased relative volume in 2026 could be retail, which has already posted a robust volume of $3.51 billion.

Its price-per-square-foot range ($330 to $690) is the highest, suggesting that premium, necessity-based or experiential retail is performing well.

"If inflation moderates and consumer spending remains resilient, well-located retail with grocery anchors or service-oriented tenants could see cap rates compress further, attracting more capital seeking value between the highly competitive multifamily/industrial sectors and the troubled office sector," Chung said.

Source: GlobeSt/ALM