Skanska USA Commercial Development is moving forward with plans for a downtown Los Angeles office project that appear ambitious in a troubled market that has shown no sign of rebounding.
If built today, the proposed development would nearly double the amount of office space that has broken ground in greater Los Angeles since the start of 2022, according to CoStar data.
The U.S.-based arm of the giant Swedish construction and development firm began the entitlement process to build a 15-story, 290,900-square-foot office and retail building in downtown L.A.'s Arts District at 1811 Sacramento St., according to city documents and a statement from the developer. The project would result in the redevelopment of a pair of industrial buildings Skanska bought in 2020 for $18.9 million, according to CoStar data.
Office leasing in the 69 million-square-foot downtown Los Angeles office market, the region's largest, has been challenging during the pandemic as demand shrank and working from home became increasingly popular. The reduced demand has received more attention because of the prominence of Los Angeles as the nation's second most-populous city.
Seven direct office leases larger than 50,000 square feet have been signed in the past year in the downtown L.A. market, according to CoStar data. That's slightly better than the six signed in pre-pandemic 2019, but off the 12 leases of more than 50,000 square feet signed in 2018.
The downtown office market's vacancy rate also rose to 17.7% from 17.2% year over year, according to CoStar data. That said, annual asking rates remain firm at $38.94 per square foot.
Offices in the Arts District, north and east of the central office core, have fared better in recent years than office buildings in the central office core, which are largely older and perceived to face a bigger homelessness problem than the Arts District.
Warehouse-to-office conversions have been popular in the Arts District and have attracted big-name companies including architecture firm HOK, streaming music company Spotify and record label Warner Music Group.
Still, the Arts District isn't immune to the market's broader challenges. Last month, PayPal Honey, an online coupon firm, marketed for sublease its roughly 131,000-square-foot headquarters at 963 E. Fourth St. in the Arts District.
Clare De Briere, executive vice president for Skanska USA Commercial Development’s Los Angeles market, told CoStar News in an email that the company believes work is best done in person and that high-quality office spaces will stay in demand.
"Skanska’s self-financing model allows us to take risks and deliver in our key markets," De Briere said in the email. "Entitlements take time. We have long-term goals; this is a long-term project and Skanska has full confidence in the L.A. market."