Downtown Los Angeles is in the midst of a remarkable renaissance, with retail, residential and hospitality development driving the transformation – and the office market is finally showing signs of joining the resurgence as well. Last year, tenants leased up 4 million square feet in the submarket, roughly double its annual long-term pace of 2 million square feet. But that surge in deal activity barely made a dent in the submarket’s vacancy rate of nearly 20 percent due to tenant consolidations and new product. Both creative companies and downtown’s traditional tenant base – professional services and law firms, in particular – are taking advantage of the opportunity this submarket offers. Class A asking rents in downtown averaged $3.41 at the close of the fourth quarter, compared with $4.49 on the Westside and $4.30 in Hollywood. Contributing to that downward pressure, there are more than 100 vacant full floors in institutional buildings in the submarket. On the positive side, the Arts District is on the verge of becoming a legitimate option for 100,000-square-foot-plus users as well with recent investments by institutional owners Shorenstein Properties and Hudson Pacific Properties.
Andrew Lustgarten is a corporate managing director at the downtown L.A. office of Savills Studley Inc.
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