Downtown's Pain Is Pasadena's Gain: Where Office Tenants Go When They Leave DTLA
Office tenants leaving or dramatically reducing their space in Downtown Los Angeles means an influx of activity in other areas, including trendy neighborhoods like Century City and smaller cities like Pasadena and El Segundo.
In the past, it would have been common for 75% of a firm’s LA-based workers to be in Downtown and 25% to be on the Westside, but now that’s shifted to half and half or, in many instances, 75% in Century City and just 25% Downtown, CBRE Executive Vice President Jeffrey Welch said.
“Most companies are doing what I would call quiet leaves or quiet downsizes of downtown,” Welch said. “They're not leaving it. They're keeping footprints, whether it's a bank, a law firm, a consultant firm, a lot of companies have downsized their footprint and grown in either Century City or other suburban markets, and I think that's not a trend that's going to stop. I think it's going to get worse before it gets better.”
Wedbush Securities, which has had Downtown offices since 2001, is moving to Pasadena next year. Its new offices, 80% smaller than the space it will leave behind in DTLA, are "meant to accommodate employees who now work remotely much of the time,” the Los Angeles Times reported.
Wedbush’s decision to move was also motivated by the appeal of Pasadena, which Wedbush President Gary Wedbush told the LA Times had “recovered more fully from the pandemic than downtown Los Angeles has” – a factor that also played a role in the firm’s decision to leave Downtown.
Downtown’s reputation has not recovered since the onset of the pandemic, and Century City is often described as the safe, clean foil to Downtown. Those sentiments continue to play a major role in the neighborhood’s attractiveness to occupiers.
Safety is what tenants want when making office decisions in today’s market, Welch said.
“As long as that remains an impediment, Downtown is swimming upstream,” he said.
Downtown’s vacancy rate was 28.2% last year, with negative annual net absorption of more than 1.5M SF, according to data from CBRE. This year through the third quarter, Downtown’s vacancy rate is 32.8%, with nearly 1.2M SF of negative net absorption.
Law firm Sidley Austin moved last year to shrink its Downtown office by more than 50% from approximately 136K SF at the Gas Company Tower to 70K SF at Bunker Hill’s City National 2Cal building, The Real Deal reported at the time.
The firm also signed a lease to relocate and upsize its Century City office. It will take three full floors amounting to 70K SF at the under-construction Century City Center, with move-in following completion of the project at 1950 Avenue of the Stars in 2026, the firm announced in early 2024.
While it’s hardly new for firms, especially law firms, to have LA offices in Downtown and Century City, Welch said that Downtown’s reduced desirability has meant that the balance between those offices has shifted.
Moving to a less central location means looking at employee location maps and employee commute patterns, Welch said, and using that information to select an office site outside Downtown.
Pasadena’s a common landing pad for companies looking to leave Downtown behind, he said. “It’s a nice bedroom community with strong amenities and a better environment from a safety perspective,” he said.
El Segundo, for its proximity to labor pools in the South Bay, has also been attracting a lot of attention from companies looking beyond Downtown for their office, Welch said.
Downtown still has a number of advantages, not least of which is its centrality.
“It's still a central location, the center of all public transit, a key location for sports and entertainment – the Lakers, the Dodgers,” Welch said. “It's going to play a large part in the Olympics. So Downtown does have a future, but we're struggling.”
