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Hudson Pacific Selling Property, Looking To Lease In Difficult Office Environment

Real estate investment trust Hudson Pacific Properties is feeling the effects of a combined economic slowdown and a sluggish return-to-office movement that has kept office leasing depressed for more than two years.

Hudson Pacific Properties' headquarters in West LA.

The Los Angeles-based company reported net losses of $6.8M in the third quarter and $10.9M year-to-date in its latest earnings release, although leasing velocity improved and it divested some assets, boosting third-quarter revenue by 14.4% to $260.4M.

Hudson Pacific's in-service office portfolio was 87.8% occupied and 89.3% leased at the end of the third quarter, according to financial filings. A large tenant move-out in San Jose — Qualcomm left behind 377K SF — pushed that figure down.

Without that, the portfolio would have been 91.8% leased, down just 44 basis points from the previous quarter, Hudson Pacific President Mark Lammas said during the company's third-quarter earnings call.

In Los Angeles, their in-service office portfolio is 98.9% leased. The company said it already has two tenants that are interested in taking the entire 168K SF space that was vacated by the NFL when it moved to a new office near SoFi Stadium in Inglewood. 

Though HPP saw a year-over-year increase in leasing activity, completing over 380K SF of new and renewed leases in Q3, "there is no question that tenants are being more methodical in their decision process given a slower than anticipated return-to-office and the rapidly changing economic climate, marked by high inflation and rising interest rates,” HPP Chairman and CEO Victor Coleman said in a statement.

Though leasing was up, executives noted that it was taking longer to get leases across the finish line, and that they were still seeing tenants delaying office space decisions. 

“We are executing and progressing deals with small to midsize tenants and with less velocity than we would like,” Lammas said.

Unlike some other office landlords, HPP is not shying away from selling assets that no longer fit into its strategy. HPP has recently sold three properties, with another expected to follow soon.

Pricing on at least one, a Hollywood office property on Hollywood Boulevard, was “softer than initial expectations,” Lammas said, but he added HPP was happy with the sale price. The property received four or five offers, executives said, but they ended up accepting one from an all-cash buyer.

The company also has two assets on the market in the Arts District — the 132K SF Fourth and Traction at 963 Traction St. and the nearby Maxwell building at 405 Mateo St. The Maxwell building was previously leased in its entirety to WeWork, but the company moved out and only some of the space has since been subleased, The Real Deal reported. Fourth and Traction is fully leased to online coupon company Honey.

As for potential new development, Coleman said pre-leasing was key. 

“To break ground, there’d have to be a pre-leasing component — the amount of pre-leasing and tenant quality is obviously up in the air,” he said.