Fewer firms are renting office space in Los Angeles.
About 2.8 million square feet of new leases was signed in the market during the second quarter — a 20 percent drop compared to the total square footage for leases inked in the prior quarter, according to a Savills report.
The slowdown in lease signings came as the Federal Reserve raised interest rates three times, pushing the federal funds rate to between 1.5 and 1.75 percent, and overall fears about an impending recession, the report said.
Savills cited “several anecdotal examples of deals falling out of contract” from April through June and a number of firms putting decisions about leasing space on hold.
The drop in leases, however, didn’t affect L.A.’s overall office availability much. A quarter of the city’s office space is currently available, dropping slightly compared to the first quarter.
As interest rates continue to rise and tenants continue to adopt hybrid work models, it’s unlikely L.A. will see major improvements in availability or increases in asking rents in the near future.
A number of large leases propped up the market last quarter, stabilizing availability rates. Amazon signed the largest lease of the quarter — and of the year — taking 207,000 square feet at the Water Garden in Santa Monica, a 1.2 million-square-foot complex owned by an investment fund advised by JPMorgan.
Santa Monica holds the title of the most expensive submarket for office space, with average monthly asking rents at $5.86 per square foot during the quarter. Across L.A., the average was $3.87 a foot — a 0.7 percent year-over-year rise, showing how average office rents have barely risen since the start of the pandemic.
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