The office market in Los Angeles is undergoing a significant transformation, driven by an unexpected factor: federal government lease cancellations.
Avison Young has introduced a new database, the Federal Property Pulse, which highlighted that over 70,000 square feet of federal leases in L.A. County have been terminated for the year 2025 alone.
This trend places California at the forefront of lease cancellations nationally, with Los Angeles leading the state by contributing 21% of the total canceled square footage.
Lease cancellations are affecting various neighborhoods across the city, including Wilmington, Rowland Heights, Monterey Park, Brentwood, downtown, and Mid-City.
Agencies impacted by these cancellations include organizations such as the Federal Highway Administration, U.S. Food and Drug Administration, and Natural Resources Conservation Service, indicating a broad spectrum of government operations is affected.
Moreover, Ventura County, just under 20 miles from L.A. County, has also seen two lease cancellations, pushing total cancellations in the region to over 100,000 square feet.
In contrast, the Inland Empire and Orange County have seen smaller cancellation figures of over 21,000 and 26,000 square feet, respectively.
Grant Hayes, market intelligence lead at Avison Young, pointed out that the federal government was historically considered a stable tenant, a perception that has changed notably with the Department of Government Efficiency project, known as DOGE.
The tracking initiative by Avison Young was sparked by DOGE’s attention on numerous lease terminations across the U.S., with the project reportedly generating up to $155 million in savings as of late June.
Even before President Donald Trump’s administration, changes were evident.
Between 2015 and 2024, Hayes observed a marked reduction in new demand for GSA procurements despite a 61% rise in renewal rates for GSA leases during the same timeframe.
On a larger scale, Hayes noted that the federal government’s leased footprint has consistently shrunk over the past decade.
However, the volume of lease cancellations in 2025 has significantly surpassed previous annual declines, with nearly 6 million square feet of leases terminated nationwide by July 1 this year alone.
Hayes attributed part of this trend to the changing landscape post-COVID-19, where the necessity for office space has diminished.
He mentioned, “It’s also obviously a way for the federal government to save money,” reflecting a broader adaptation to new work models.
The Federal Property Pulse database also highlights potential future lease cancellations.
In L.A. and Orange counties, along with the Inland Empire, 90% of canceled leases are either in soft term status or soon to be.
‘”Soft term” refers to leases that can be canceled after a certain period, while “holdover” indicates a GSA occupancy beyond the lease’s expiration date.
Harry Klaff, principal and U.S. president of Avison Young, noted that the prevalence of soft term leases presents a significant issue.
By tracking this data, Klaff indicated that Avison Young can forecast future cancellations, particularly by assessing which agencies occupy these leases and any anticipated federal budget cuts.
“We are tracking this in every market in the United States, and Los Angeles has a significant federal presence,” he stated.
Los Angeles currently ranks 11th for potential future federal lease cancellations, with estimates of 1.1 million square feet at risk, primarily involving class B and class C office spaces.
Hayes pointed out that there has been an accumulation of active leases with imminent expirations.
Klaff emphasized that these cancellations will have profound implications for office markets like Los Angeles.
He articulated, “It will absolutely impact vacancy, and decisions are going to be made regarding what that looks like,” remarking on the essential considerations for various stakeholders in the industry.
Once leases are canceled, tenant vacating timelines usually range from six months to a year.
This adds more vacancy into the market, increasing supply but also creating opportunities for conversions or acquisitions at potentially lower price points.
Hayes highlighted that many canceled leases are “low hanging fruit,” or spaces that may have been undeservedly occupied.
He suggested that the buying patterns seen in D.C., where properties are acquired at low costs, minimally renovated, and then rented competitively, may be mirrored in Los Angeles.
Jeff Benson, managing director for Northmarq in Los Angeles, shared insights on the short-term and long-term impacts of these lease cancellations.
In the immediate future, he anticipates “minimal downside” as federal lease terminations add more vacant space to an already sluggish market for lower-quality office buildings.
Benson remarked, “The federal leases are departing simply vacant open space in an already softened market.”
However, over the medium to long term, he suggested the potential positive outcomes of these cancellations, as conversions of office spaces may revitalize neighborhoods and foster mixed-use developments akin to other major urban centers.
The intersection of excess office space and a housing shortfall in Los Angeles raises the question of whether the canceled federal leases could be repurposed for housing.
Benson indicated that feasibility hinges on construction costs and collaboration with local government.
He pointed out that challenges, such as high real estate costs and red tape in the approval process, complicate these conversions in Los Angeles.
To meet residential standards, upgrades to existing facilities, including plumbing and electrical systems, alongside necessary zoning changes, are hurdles to consider.
Historically, the city has been resistant to reclassifying commercial properties for residential use.
Nevertheless, Benson noted that many of the sites where federal leases have been canceled could be appropriate for affordable housing; however, execution remains contingent on numerous factors.
He proposed focusing efforts on upgrading existing housing stock, as opposed to new developments that carry exorbitant costs.
Benson concluded, “Why not focus on existing product with tenants that qualify from an income perspective?
This approach seems less convoluted, costs significantly less, protects local residents, and yields mutual benefits for both public and private sectors.”
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