The Greater Los Angeles office market is experiencing a significant decline in new construction, with only 1.7 million square feet of office space currently under construction as of the second quarter of the year, according to data from CBRE. This represents a stark contrast to previous years when construction was more prevalent. There were no new office starts recorded in the same period, highlighting a troubling trend for the market.
The anticipated office completions for the year are estimated at just 516,000 square feet, a level not seen since the aftermath of the Global Financial Crisis, which lasted from 2011 to 2014. Back in 2011, completions fell to approximately 244,000 square feet, signaling a similar downturn in the market. “It doesn’t make any sense to build a building, because you can buy buildings at a discount to replacement cost,” said Stephen Somer, Vice Chair at CBRE.
The decline in office construction follows a pattern established after the Global Financial Crisis, when the demand for office space plummeted. Currently, Greater Los Angeles is witnessing a slow recovery in office usage levels post-pandemic. Rising costs of capital and construction have compounded the situation, making it less favorable to invest in new office spaces, according to Somer.
As a result of these conditions, the trend is shifting toward existing office sales rather than new construction. In the second quarter, notable transactions included Uncommon Developers acquiring 601 S. Figueroa in Downtown from Brookfield for around $200 per square foot, and Barings purchasing an office building from Clarion Partners in Playa Vista for $151 million, approximately $500 per square foot.
Despite the overall slowdown, there are exceptions in certain markets. Medical offices and owner-occupied buildings are often excluded from the current data, and some submarkets are still seeing activity. For instance, in Century City, JMB Realty is developing a 37-story office building in what is considered the city’s busiest and most expensive submarket. Talent agency CAA has committed to being an anchor tenant in this new tower, which is currently 89% leased and set to be completed in 2026.
Somer noted, “You’re likely only building if there’s a tenant that commits to it. Then you can get financing, and they can get that built.” This tenant-oriented approach indicates a shift in how office developments are being pursued.
Another notable project is Apple’s self-development of a campus in Culver City, where the tech giant has purchased land close to the city’s E Line light rail station. Despite these individual developments, tech and media companies, which were once major drivers of office demand, have yet to return to a growth mindset, affecting occupancy rates across the region.
Speculative office construction is increasingly becoming a rarity, with Somer predicting that Los Angeles—and many other markets—may face very low levels of new office construction for the next five years due to high costs outpacing potential returns. In fact, some markets might experience an even longer dry spell.
The Greater LA area’s overall vacancy rate is currently at 24.1%, with negative net absorption exceeding 596,000 square feet, according to CBRE. Notably, no office deliveries are scheduled for the Greater LA market from 2027 onward, with the current constructions expected to be completed in 2025 and 2026.
While the halt in new inventory could theoretically limit future office space availability, it does not guarantee improvement in absorption rates or reductions in vacancy levels. Somer emphasized that a true rebound in tenant demand is crucial. “If you see tenant demand start to rebound, then you have fixed inventory with tenant demand increasing, and that will help the market,” he stated. However, the path to recovery remains uncertain, with Somer acknowledging that there is still considerable work ahead.
“We’re starting to see it,” he remarked. “It’s slow going, but it’s starting to.”
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