Market Reports

— By Sean Fulp, Vice Chair & Head of Office Capital Markets, U.S. Southwest, Colliers — Office sales, leasing and development activity are at historic lows for Los Angeles County. With interest rates rapidly increasing, few active developments, and office vacancy and availability at an all-time high, the office market is in discovery mode. One of the major trends in development is creative, state-of-the-art studio/office campuses. These developments have broken ground in West Hollywood, Burbank, Santa Monica and Culver City.  Developers in this space have the mindset of “if you build it, they will come.” Office sales activity is down more than 50 percent in the past year due to a high interest rate environment and a divide between buyer and seller pricing expectations. As loans become due, landlords will have decisions to make, and distress will occur in the market.  Office availability is at an all-time high in Los Angeles at nearly 30 percent — likely the new norm going forward. Companies have figured out that employees like to have the flexibility of where and even when they work. With that said, companies are downsizing their office space by 25 percent to 50 percent and, in some cases, by …

— By Tim Helgeson, Senior Vice President, Asset Manager, KBS — With San Diego’s median age sitting at just 34.9 and only 12 percent of the population over 64, much of the area’s workforce comprises younger Millennials and Gen Z professionals. This new generation of workers has a fresh approach to employment, not to mention a unique shared history that’s shaped by COVID. As this younger cohort enters and establishes itself in the workforce, employers expect their office space to help them attract and retain young talent. This expectation is influencing investors’ decisions and, in many ways, reshaping the office market in the new normal. These younger workers will be impacting office market dynamics now and for the next several years in a few different ways:  Accelerated Repopulation of Offices Many employees got used to working remotely during the pandemic, but there is ample evidence that companies recognize the importance of having their teams in the office. Younger workers are partially driving this trend. In fact, research shows that Gen Z values the office more now than they did before the pandemic. The truth is, no remote work situation can compare to face-to-face, on-site interactions for onboarding, teaching, mentoring and advancing …

— Scott Wetzel, Executive Vice President, JLL — Tenants and debt remain the most important drivers of the Orange County office ecosystem — both having undergone major evolutions in recent history. Maybe unexpectedly, leasing velocity improved year over year, despite the never-ending drumbeat of a pending recession. Conversely, investment markets were much more cautious as debt cost spiked and investors pumped the brakes. Leasing From Bob Iger to Howard Schultz, prominent executives are voicing frustration over the state of the office market…and rightfully so. We watched the pendulum swing from end to end as office tenants went from fully “in office” pre-pandemic, to 100 percent remote for the better part of 2020 and 2021. Today, the national office usage rate still hovers around 50 percent, according to the most recent Kastle Systems report. Orange County reflects this national trend, meaning it’s stuck in the middle between in-office and in-home. Tenants are also on divergent paths as some seek quality, while others prioritize value. New Orange County office developments like Flight (Lincoln Property Company), Boardwalk (AEW) and Spectrum Terrace (the Irvine Company) are fully leased and have achieved premium rental rates, typically 70 percent-plus above average market lease rates.  Large contiguous …