By Nico Vilgiate, Executive Vice President, Colliers
Greater Los Angeles has one of the largest office development pipelines in the nation, which includes new construction and some sizeable adaptive reuse projects. There is currently more than 6 million square feet in this pipeline with nearly 2.7 million square feet scheduled to deliver this year. This will increase overall vacancy throughout 2021. The most significant developments are occurring in Downtown and West Los Angeles, which contain more than 55 percent of all new office construction. One of the most prominent projects is One Westside, a shopping mall conversion that will contain 584,000 square feet of creative office space in West Los Angeles. Google will be moving into the building upon completion.
Nico Vilgiate, Executive Vice President, Colliers
The greater Los Angeles overall vacancy rate of 18.3 percent is 50 basis points higher than the previous peak in 2013 when it reached 17.8 percent. Sublease availability has increased over the past four quarters due to the work-from-home mandate. However, there has been an increase in the overall average asking rate in the past few quarters. The rate has increased by 4.4 percent year-over-year to about $3.54 per square foot, per month. Asking rate rental growth during this period was strongest in the South Bay.
The South Bay was a bright spot with most leasing activity in first-quarter 2021, comprising 35.3 percent of the greater Los Angeles total. Plant-based meat substitute Beyond Meat committed to 281,000 square feet in the South Bay for research and development. This headquarters expansion was one of the largest deals signed in greater Los Angeles since the pandemic. The South Bay also leads office tenants in the market with more than 2.7 million square feet of active requirements. West LA and Downtown follow, with 2 million square feet and 1.2 million square feet, respectively.
Dubbed Silicon Beach, West Los Angeles stands out with an elevated sublease availability rate of 6.1 percent, which is higher than the greater Los Angeles sublease rate of 4 percent. Sublease space as a percentage of overall vacancy is particularly high in Santa Monica and Culver City.
While vacancy continues to rise across all greater Los Angeles office markets, Downtown had the lowest year-over-year vacancy rate increase. The overall vacancy rate of 21 percent is up 130 basis points from one year ago. Nearly 60 percent of the vacant space in Downtown is in the high-rise Financial District.
Ultimately, the greater Los Angeles office market has reached an inflection point. On the ground, we are in the “discovery” phase of return to work. Before we see meaningful absorption that can make an impact in the decrease in vacancy, however, employers need to determine who is going back to work and in what capacity. Once they can answer that question, occupiers will be able to better understand their needs surrounding square footage, location(s) and flexible space design.