Office pricing across Los Angeles is at a record low and leasing demand is far from its pre-pandemic days, but more investors are betting on a rebound, with one scooping up a duo of buildings in the heart of the city's entertainment industry hub.
Uncommon Developers, a private real estate firm based in the San Fernando Valley, paid $45 million for the Academy Tower building at 5200 Lankershim Blvd. as well as the property nearby at 4640 Lankershim Blvd., according to local property records. A joint venture of private investment firm Rockwood Capital and Artisan Ventures were the sellers in the deal that closed late last month.
"This was purchased on a per-square-foot basis with the bet that the market will recover," Kevin Shannon, Newmark's co-head of U.S. capital markets who helped represent the joint venture in the deal, told CoStar News. "There's a general feeling that we've hit the bottom, and even though vacancy rates are still climbing in Los Angeles, deals are trading. We've reached a turning point for the market."
The price tag for the Academy Tower portfolio equates to about $186 a square foot, well below the $270 per-square-foot average Rockwood and Artisan paid when the partnership purchased the two buildings as part of a larger deal in 2019, according to CoStar data.
A majority of the portfolio's tenant roster includes entertainment companies looking for easy access to some of the neighborhood's nearby studios, said Ryan Patap, CoStar's senior director of market analytics in Los Angeles. The Academy Tower building draws its name from its proximity to the iconic Academy of Television Arts & Sciences.
'Recovery mode'
The deal comes as investors are becoming increasingly optimistic about Los Angeles' broader market recovery after years of COVID-19 pandemic-induced losses. Over the past 12 months alone, buyers in the Hollywood area have collectively pushed deal volume up nearly 125% compared to this time in 2023, according to the data.
Across the larger Los Angeles office market, sales volume is up by 12% from a year ago.
Since the pandemic's outbreak in early 2020, office landlords across the country have struggled to retain their existing tenant rolls and attract new ones to fill vacant spaces.
The national office vacancy rate, fueled by companies offloading record amounts of sublease space and responding to the effects of remote work, has climbed to nearly 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 180 million square feet of move-outs since the start of 2020.
What's more, the number of leases recently signed has shrunk considerably, averaging about 20% smaller than pre-pandemic averages.
Tenant downsizings and real estate cuts have pushed vacancy rates in the Hollywood area up to nearly 15.5%, significantly higher than the roughly 6% reported at the beginning of the pandemic, according to the data.
Deep discounts aside, recent sales spotlight building momentum among investors once again willing to bet on the national office market, according to brokers and CoStar data.
"There's a general sense that if you close a deal now, you can make some good money on it," Shannon said. "Leasing is up across most of the markets we track, and many of them are in recovery mode."
For the record
A team of Newmark brokers including Kevin Shannon, Ken White, Laura Stumm, Michael Moll, Michael Kolcum and Rob Hannan represented the joint venture between Rockwood Capital and Artisan Ventures in the deal with Uncommon Developers.