OFFICE MARKET TRENDS Additional signs the LA office market has reached bottom came to light in Q4. Occupancy nudged up as total net absorption turned positive for the first time since Q2 2022, and only the second time since the pandemic began. Downtown absorption remains negative but improved slightly YoY amid a 10% increase in lease volume from 2023. 10.8 million s.f. of leasing for the year represented 93% of pre-pandemic levels market-wide, but downtown leasing remains around 75% of pre-pandemic levels. Q4 leasing activity received a boost from LA 2028, the Olympic and Paralympic Games organizing committee. The organization took 160,000 s.f. in Downtown LA, the largest lease signed in Q4. In another notable Q4 lease transaction, law firm Loeb & Loeb recommitted to 130,000 s.f. in Century City, one of the strongest submarkets in LA, which captured 16% of Q4 total leasing activity. The migration of tenants from the urban core to Westside submarkets including Century City is likely to stem in 2025, as less than 2 million s.f. remain available for lease in Century City, including within the development pipeline. Although sales volumes remained flat, favorable pricing indications emerged on the Westside. Highlighting this, the Arboretum, a 226,000-s.f. office building fully leased to Universal Music Group for 12 years in Santa Monica, traded LOS ANGELES (DOWNTOWN) • Total absorption trended positive for the LA metro, but the Downtown submarket continues to lose occupancy as tenants relocate to other Westside submarkets – however, relocation options are waning, which could drive demand back to downtown LA for larger blocks of space and less expensive deals. • Sublease availabilities decreased from 10.5 million s.f. to 10.0 million, a 5% decline quarter-over-quarter, driven by backfills and subleases expiring as direct availabilities. • A proposed doubling of film incentives by the State of California could help bolster entertainment industry, which has faced reduced filming activity and competition from other states. Net absorption and overall vacancy rates Gross leasing activity Rental rates and going-in yields CBD Class A cap rate (%) Cap rate Asking rent 0.5 0.0 -0.5 -1.0 -1.5 8% 7% 6% 5% 4% 3% 35% 30% 25% 20% 15% 10% $50 $45 $40 $35 $30 $25 2010 2010 2014 2014 2018 2018 2012 2012 2016 2016 2020 2020 2022 2022 2024 2024 Net absorption (m.s.f.) Total vacancy (%) Downtown Los Angeles Rest of Los Angeles for $183 million ($810 p.s.f.). In Beverly Hills, 407 Maple, a 174,847-s.f. Class A asset, sold for $118.3 million ($677 p.s.f.). Apparel company Fashion Nova acquired the property and will occupy the premises. In another noteworthy owner-occupier trade, the 1.4 million-s.f. Gas Company Tower in Downtown LA was acquired by the County of LA for $200 million ($143 p.s.f.). OUTLOOK Firmer return-to-the-office mandates have begun to stem the tide of space giveback and will help stabilize LA’s office demand. LA’s diversified tenant base will continue to bridge the lull in tech demand. The entertainment sector, LA’s other leading industry, continued to face headwinds tied to reduced filming and costly streaming competition. However, a proposed doubling of film incentives by the State of California could help keep more filming activity locally and bolster this important economic sector. While high-end concession packages continue to be executed with improvement allowances in the mid-to-upper $100s, there was some softening of downtown concessions rates in 2024: average TI packages for new deals fell by 14%, and a greater share of new leases were signed with improvement allowances lower than $100 per s.f. MUST'S SUBMARKETS Overall market statistics Forecast 2024 net absorption (s.f.) -3,311,669 Under construction (s.f.) 2,187,931 Total vacancy (%) 28.4% Sublease vacancy (s.f.) 8,586,304 Asking rent ($ p.s.f.) $48.48 Concessions Stable 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 10.8M 10.8M 7.8M 10.3M 11.9M 6.3M 7.6M 7.2M 7.3M 9.1M 3.6M 2.2M 2.3M 3.1M 2.1M 1.4M 1.3M 1.9M 1.5M 1.7M INDEPENDENT MARKET REPORT By JLL as at 31 December 2024 44 | MANULIFE US REIT
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