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Major companies rethinking their office needs have contributed to softer fundamentals for Los Angeles' prime office properties despite countless refrains of a nationwide flight to quality among office tenants.
Vacancy rates for Class-A office reached 23.6% in LA in the first quarter, according to CBRE. Class-B property, meanwhile, carried a 16.9% vacancy rate, and the overall office market was 24.2% vacant to start the year.
Likewise, Class-A spaces posted net negative absorption of 698K SF, while Class-B space had net negative absorption of 207K. Absorption for all office space has been negative 1M SF or more for six of the last seven quarters, with Q1 2025 coming in at negative 1.1M SF.
Trends like these have been present in the LA market since 2020, but the gap between Class-A and B is widening.
Class-A buildings typically host tenants with larger footprints, according to CBRE Vice Chair Blake Mirkin. Many of these companies are downsizing but staying in the same quality of building, resulting in the increased vacancy as high-quality properties remain the top pick.
“The really large, successful companies that are taking 50K SF and more are generally looking to Class-A, because they can — they're successful, they can pay the rent,” Mirkin said.
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Rising vacancy rates for these top-of-the-market buildings are often because a big tenant, or several big tenants, moved out. The quarter did see some large tenants moving on, including Forever 21 closing up its offices at Brookfield’s California Market Center.
The pattern can also be seen in transactions, such as Wedbush Securities’ move out of its Downtown office to a Pasadena location that’s 80% smaller. When Disney moves off the Fox lot in Century City, it won’t lease new space but will instead consolidate in existing properties where it already has offices.
Mirkin noted that higher vacancy and negative absorption for Class-A space don’t necessarily contradict the flight-to-quality mantra. Those Class-A tenants that downsize or consolidate usually reshuffle into another Class-A building, Mirkin said.
Though there were several large new leases over 100K SF, including two new leases and one expansion, the quarter did not turn out to be what brokers anticipated prior to the start of the quarter.
“It really did feel as though January was going to be a resurgence of activity, and I think unfortunately we had another bit of a setback, certainly on the Westside of Los Angeles, with the fires that gave great pause to transactions,” Mirkin said. “The first quarter was not as exciting as we thought it was going to be.”
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