Downtown Los Angeles boosters say they are seeing promising signs better days are on the horizon for one of the country's hardest-hit office markets following the pandemic.
The number of workers visiting downtown Los Angeles hit a post-pandemic high in the fourth quarter of 2024, according to the DTLA Alliance, a group comprised of 2,000 property owners that oversees the 65-block downtown business improvement district.
At the same time, more downtown residents report they feel safer and happier, while multifamily vacancy rates are consistently north of 90%, according to Nick Griffin, the district's executive vice president.
In-person office mandates, a concentrated housing push and an increase in job availability has contributed to signs of a recovery for a region that has struggled more than similar sized downtowns across the country in returning to pre-pandemic levels of real estate activity.
Downtown LA's office occupancy is up to 21% from 20% a year ago with tenants having given back 661,000 more square feet of office space than they leased in the past year, according to CoStar data. National office vacancy, meanwhile, is holding steady below 14%.
Downtown Los Angeles "has made significant progress in key sectors like residential, hospitality, and retail, but there is still work to be done to ensure a thriving, competitive urban core," Griffin said in a statement.
Back-to-office push
About 81% of downtown employers surveyed said they plan for at least 50% of employees to work full time from an office in 2025.
Anecdotally, "we're seeing more bodies downtown, even just walking around," said Erica Finck, managing director of the capital markets group at Cushman & Wakefield in Los Angeles.
Downtown Los Angeles, home to 150,000 public sector jobs, is seeing a boost from the nationwide return-to-office trend. Federal and state mandates are driving thousands of government employees back to downtown workplaces. In one of the most significant shifts, Gov. Gavin Newsom has ordered nearly 100,000 state workers to return to the office four days a week starting in July.
Downtown Los Angeles has the highest concentration of government office workers of any office hub in the city.
At Deka Immobilien’s 915 Wilshire Blvd, the Army Corps of Engineers and Department of Justice occupy roughly one-third of the building, reflecting the significant public sector presence in the area.
Overall, the number of jobs in downtown Los Angeles has grown by almost 10% since 2021, with wages growing by an even more impressive 23%, according to the survey.
An uptick in office transactions over the past 18 months is also helping revive the downtown leasing market, Finck said. The number of office property transactions closed in the past year is up by 114% year over year, according to CoStar data. Meanwhile the average asking rent is down slightly year-over-year to $38 per square foot, below the greater Los Angeles market office rent average of $42 per square foot.
Because many of these properties are trading at a discount, "new landlords are able to come in and offer office space at lower lease rates than a prior ownership was able to do," Finck told CoStar News.
For example, the new owners of one of downtown's tallest towers, Aon Center, landed a major lease with California Bank & Trust after buying the struggling property at a 45% discount from the previous purchase price.
"It's going to take time, but that should attract more tenants, especially cost-conscious tenants to the downtown core, which will then bring even more bodies, which will then create more demand for retail, restaurants, amenities, services. Which will then create a more vibrant environment that more people are going to want to live in," Finck said.
Ambitious housing goals
Downtown Los Angeles' 90,000 residents are younger, wealthier, more ethnically diverse and more educated than the average Angeleno, according to the DTLA Alliance’s annual survey of 1,200 stakeholders conducted from Jan. 27 to Feb. 14 and released this week.
The neighborhood’s population has surged by 47% since 2010, while greater Los Angeles grew just 1%, and Los Angeles County’s overall population declined by 2%, the alliance reported.
Multifamily occupancy in downtown remains strong at 95%, a sign that demand for housing in the area is holding steady, according to Finck. The residential market rebounded quickly after a brief pandemic downturn, with both rents and occupancy rates returning to pre-pandemic levels, according to the alliance.
Many young renters are drawn to downtown’s central location and its fresh inventory of modern, relatively affordable apartments, said Ryan Patap, CoStar’s senior director of market analytics for Los Angeles. Downtown Los Angeles will likely continue to see outsized apartment construction in the coming years, with an ample supply of sites, according to Patap. CoStar currently tracks 10 proposed projects with over 300 units in the neighborhood.
“If you want a shiny new multifamily unit in Los Angeles, downtown is where the most are available,” Patap said.
Developers have 1,600 new units underway, which will expand unit count by 3.8% once all projects finish, according to CoStar data. Notable projects include a $1.4 billion, 1.8 million-square-foot mixed-use complex at 670 Mesquit in the Arts District that will add 900 apartments in addition to office, retail and hotel space if completed by 2031 as expected by developer Vella Group.
To support future growth, city officials recently unveiled a plan to accommodate 100,000 new housing units and 175,000 extra people by 2040. Key initiatives include expanded residential zoning, density bonuses for developments that include affordable housing or open space, eliminating parking requirements and making older buildings eligible for adaptive reuse incentives.
“That’s an ambitious goal,” Finck said, noting that high construction costs and interest rates would need to come down to make such large-scale development feasible. “If you look at the last 15 years, I think there were something closer to 30,000 units built, and that felt like a lot, although the majority of those units have been absorbed.”
Pulling out of downtown
Despite strong residential demand, downtown Los Angeles still struggles with a persistent homelessness crisis and concerns about crime, which have made the area less appealing to some tenants. Some businesses and residents have migrated out of the area over the past few years because of those challenges, Patap said.
In September, Wedbush Securities announced plans to leave downtown for Pasadena. More recently, global brokerage Savills said it would close its DTLA and Westwood offices, bringing its local operations in a larger “experiential” space opening this summer on a full floor in a Century City property undergoing a $100 million renovation.
Earlier this month, Forever 21 told California officials it plans to close its downtown LA headquarters at Brookfield Properties' 1.8 million-square-foot California Market Center by May.
Less than half of respondents in the alliance's survey said they feel safe in downtown Los Angeles at night, according to the survey. And 43% of respondents said the area's homeless problem has not improved in the past year. To combat the problem, the business improvement district has added more streetlights and safety patrols to help with homeless outreach, graffiti removal and trash collection.