REAL ESTATE NEWS

Office tenants in Los Angeles have increasingly prioritized higher-quality office space since the post-pandemic recovery in 2021, with Class A reaching a cycle high leasing share of 72.4% in 2025.

Even though overall office demand has fluctuated, higher-quality buildings have consistently captured a disproportionate share of leasing activity, according to a new Avison Young study about the Los Angeles office market.

Shane Halpern, market intelligence analyst for the West region at Avison Young, told GlobeSt.com, "This isn't particularly surprising. The return-to-office push over the past couple of years helped bring some occupiers back into the market, but most companies are still planning around hybrid work."

Halpern said that at this point, many tenants have already adjusted their workplace strategies, so the initial surge in return-to-office appears to be leveling off.

"What we're seeing now is tenants consolidating footprints while upgrading into amenity-rich buildings that offer a stronger in-office experience," he said.

Ed Del Beccaro, executive vice president and San Francisco Bay Area regional manager of TRI Commercial Real Estate/CORFAC International, added that a recent, noteworthy trend is that, despite the very weak office market, a "flight to quality" has occurred, where tenants are leasing space in the newer and better-quality downtown markets across the country.

"These tenants, especially in the legal, accounting, consulting, and tech headquarters, are willing to pay top-of-the-market rents," Del Beccaro told GlobeSt.com.

"This is occurring despite the velocity or number of lease transactions per month having decreased sharply over the last three years. The size of the average transactions has also decreased with tenants leasing less space."

Office Isn't Defined by One Trend

Meanwhile, in the post-pandemic world, there is no single 'return-to-office' trend characteristic, according to Steven Quick, ISS' CEO of Americas.

"Patterns are highly bespoke – by company, business model, and culture – rather than cleanly divided by industry," Quick said.

"However, over the past year, many companies have quietly settled into a normalized hybrid pattern – often around three days a week in the office – and then stopped there."

He said the risk now isn't upheaval; it's complacency.

"Too many organizations are living with underutilized office assets and an 'it is what it is' mindset, instead of asking harder questions about what those spaces are actually doing for their people and their business," Quick said.

Tenants 'Surprised' at Cost to Upgrade

There's been a trend toward more time in the office; however, Grant Bollman, senior vice president at Lee & Associates of Illinois, told GlobeSt.com that this amount of time is not market or industry-dependent.

"In general, companies are demonstrating the desire to upgrade into high-quality buildings and deliver spaces employees actually want to come back to," Bollman said.

"The challenge is that it's expensive to get there – construction costs, build-out funding, and rising rents in top-tier buildings all create real roadblocks. Even in markets where vacancy is elevated, owners of premier properties are still pushing rates up. Tenants are often surprised to have to decide how much they are willing to spend on their build-out beyond their initial budget."

As a result, a constant trade-off exists between creating an ideal, hospitality-inspired workplace and staying within a realistic budget. He said many landlords have become more flexible on items like tenant improvement allowances or rent abatement than they are on base rent, which adds another layer of complexity to negotiations.

"While the desire to deliver better, more engaging office environments is strong, actually executing those upgrades is often much harder than it looks on paper," Bollman said.

Source: GlobeSt/ALM