New Leases And Return-To-Work Pushes Give Office Owners Hope For LA Market

Though the office market is struggling, Los Angeles office owners and developers have found some glimmers of hope.

“It's no surprise to everyone here that the fundamentals are sluggish at best,” McCarthy Cook Senior Vice President of Leasing Michael Coppin said to a full room in the Sheraton Grand in Downtown LA for Bisnow’s Los Angeles Office Market Outlook event.

Greater LA saw a 12.7% drop in new leasing activity, down to 1.6M SF in the second quarter, according to a report from CBRE. But Coppin found a promising sign in that same report. Sixty percent of all office leases in greater Los Angeles in the period were new leases, an indication that there is “still an underlying demand for office space,” the report stated.

“It’s a positive sign of the undercurrent of groups starting to come out of the woodwork to make long-term commitments,” which is a departure from previous years, Coppin said. 

But it’s clear those tenants have the upper hand in negotiations. Coppin said his company is giving away free rent more than it did in the past, but spreading it out across the term of the lease, which he said allows them to preserve face rents. Tenants also want flexibility in the form of termination rights, parking and short-term options on expansion, he said. 

These types of flexibility “allows them to kind of ebb and flow with their forecast of where their business and where their labor force is going,” Coppin said. 

Tenants that aren’t ready to commit are becoming less common, Brookfield Properties Senior Vice President of Leasing, Western Region John Barganski said. 

“A year ago, we were seeing a great number of transactions go all the way to the finish line and then we get that call at 4 o'clock on a Friday: ‘You know what? Can we do a one-year extension? Can we do a two-year deal? We're just not ready yet,’” Barganski said. “This year, we're seeing less and less of that. People have more positivity.”

Barganski was encouraged by reports that Amazon was urging workers to move closer to its larger, urban hubs as a sign that companies have not given up on bringing people back to the office and enforcing the rules they laid down about how much they have to come in — another glimmer of hope.