Report: Sublet Availability Decreasing in LA Office Market as Companies Withdraw Space, Head Back to the Office

Prospect Ridge Burbank Empire Center UBS Realty Investors Los Angeles Newmark DivcoWest Hyundai Motor of America East Valley El Segundo
Courtesy of Cameron Venti

By Catherine Sweeney 

Despite uncertainties caused by the COVID-19 pandemic, the Los Angeles office market is seeing a decrease in sublet availability as companies withdraw sublease space amid talks of heading back to the office. According to a report from Newmark, which analyzed leasing trends in Los Angeles’ office market, the amount of lease transactions increased 87.9 percent since the same time in 2020. 

According to the report, which analyzed leasing activity from June to August, sublet availability has seen a large decrease over the past several months. In June, Newmark reported 7.49 million square feet of sublease space available in the Los Angeles office market, while in August, 6.87 square feet of sublease space was available. 

During the same time, Newmark reported 541,343 square feet of new sublease space becoming available, 333,288 square feet being leased and 582,289 being withdrawn. This translates to a decrease of 621,131 square feet of space, according to the report.  

“Really what we saw was upwards of 10 million square feet hit the market during COVID-19 in addition the sublease square footage that was already available and then really what happened was, in June of this year when Los Angeles in general reopened, companies starting focusing on when they were going back into the office,” Ryan Harding, executive managing director with Newmark’s downtown Los Angeles office, said. 

“They went out and said let’s look at direct and sublease spaces and try to take advantage of people’s infrastructure and improvement and not come out of pocket a lot and what happened was a lot of subtenants were very, very aggressive in their sublease proposals so when you started to run the numbers on the recovery rates and then factored in relocation cost and everything that went with that it didn’t really make a lot of sense. A lot of clients decided to delist because it just didn’t make sense.” 

According to the report, the first major space to be delisted was Lionsgate’s 192,584 square foot office space in Santa Monica in June. Since then, El Segundo saw Terradata and Beachbody delist 52,000 square feet and 42,275 square feet, respectively. Uber also withdrew 41,296 square feet in Downtown Los Angeles and XPrize Foundation withdrew 32,439 square feet in Culver City. 

While space continues to be withdrawn, sublease leasing activity is also up. According to Newmark, the Los Angeles office market has seen a 95.6 percent increase in leased space compared to the same time last year. Of these transactions, Activision leased 87,822 square feet in Santa Monica, Alo Yoga committed to 73,000 square feet in Beverly Hills and Technicolor leased 60,875 square feet in Culver City. 

In general, Harding said areas like Culver City and Hollywood have observed greater lease activity over the past several months due to the media and technology companies that take up space there. In comparison, areas like Downtown Los Angeles struggled as employees’ desire to commute to downtown areas decreased. 

“Culver City has done great, Hollywood and West Hollywood have done really well. The ones that have struggled the most are Downtown Los Angeles and Santa Monica. Culver City is still remarkably hot and Hollywood is doing really well too. You haven’t seen a big dip in rent and people still want to get in there. And the reason is obvious. It’s the confluence of technology companies and entertainment companies coming together.”

While rising COVID-19 cases continues to be a concern for many employees, Newmark does not see a slowdown in leasing activity in the coming months. With office employment currently representing 90 percent of what it was in February of 2020, these subleasing trends are anticipated to continue.  

“I think that subleases are going to continue to come off the market…I do think that people are telling us they’re coming back and they’re signing leases which is proving they’re going to go back. I think they’ll occupy it in different ways, but I think really in the fourth quarter of this year and the first quarter of next year, you’ll really see people starting to come back in some shape or form, not 100 percent but maybe three days a week, four days a week or something like that,” Harding said.