Pace Of Negative Absorption Accelerates
Net absorption was negative 2,963,800 square feet this quarter, making it the second lowest quarter on record for the Greater Los Angeles office market. The economic impact of COVID-19 is leading much of those still employed in the office workforce to continue to work from home, provided they are able to do so.
Leasing activity increased over the previous quarter, reaching 2,168,600 square feet. While continuing on a positive trajectory, this is still less than half the quarterly amount seen pre-COVID-19 as firms have put expansion plans on hold.
Vacancy rates have increased to 15.1% as tenants look to shed space. Vacant sublease space has increased by over 1 million square feet this quarter, bringing the sublease vacancy rate to 1.3%.
Paradoxically, the rental rate continues to increase, up $0.03 to $3.26 per square foot (PSF) full-service gross (FSG). This is due to more expensive Class A space being returned to the market, raising rates for the region as a whole. Pricing will likely come down in future quarters as office tenants continue to grapple with the longer term impacts of the current work-from-home paradigm.
Los Angeles County Office Market
Due to uncertainty of the economic impact of COVID-19, office demand has been negative as tenants have reexamined their business options and real estate needs. Tenants and landlords are working together to find the best leasing options as businesses continue to navigate through these unprecedented times. In many cases, lease terms are being handled on a case-by-case basis as some tenants are electing to sign short-term renewals or month-to-month options.