LA’s Trophy Office Market Softens Despite Flight to Quality

The top-tier office market in Los Angeles is showing signs of strain, as rising vacancies and continued downsizing among major tenants paint a challenging picture for landlords.

The Class A office vacancy rate in L.A. hit 23.6 percent in the first quarter, with Class B properties close behind at 16.9 percent, Bisnow reported, citing figures from CBRE. The overall office vacancy rate in Los Angeles was 24.2 percent.

Net absorption figures tell a similarly bleak story: Class A buildings saw negative absorption of 698,000 square feet, while Class B offices posted a loss of 207,000 square feet.

In total, the market recorded negative 1.1 million square feet last quarter, continuing a trend of negative absorption in six of the last seven periods.

While “flight to quality” remains a buzzy term, the reality in L.A. is more nuanced.

Blake Mirkin, vice chairman of CBRE, said the increase in vacancies among Class A properties is less about tenant dissatisfaction and more about shifting needs.

“The really large, successful companies that are taking 50,000 square feet and more are generally looking to Class A because they can — they’re successful, they can pay the rent,” Mirkin told Bisnow. “But many of them are downsizing.”

This trend is illustrated by high-profile moves by Forever 21, exiting its offices at Brookfield’s California Market Center, and Wedbush Securities, which is relocating from downtown to a significantly smaller Pasadena office.

Disney is also preparing to vacate its space at the Fox lot in Century City, opting instead to consolidate within its existing properties.

Despite these changes, tenants aren’t necessarily leaving high-quality buildings behind — they’re just taking less space.

“Higher vacancy and negative absorption for Class A space don’t necessarily contradict the flight-to-quality mantra,” Mirkin said. “They’re still in Class A — just not as much of it.”

Several large leases of more than 100,000 square feet did take place during the quarter, including new leases and expansions. Still, expectations for a strong rebound early in the year were not met.

“It really did feel as though January was going to be a resurgence of activity,” Mirkin told Bisnow, but unexpected setbacks like wildfires on L.A.’s Westside stalled momentum. “The first quarter was not as exciting as we thought it was going to be.”

— Dana Bartholomew