Greetings,
This is Manuel Angeles with Exp Commercial.
Here is an update on the current Commercial Office Real Estate Market in Los Angeles County as of March 10, 2024:
The fourth quarter witnessed $1.5 billion worth of office sales, not far off the $1.7 billion worth of transactions quarterly, on average, during the past decade. However, 2023 in total saw $3.8 billion in sales, around 40% of dollar activity in 2016-19.
Market weakness and questions around the future trajectory for space use have dented investor demand. For interested buyers, banks have shown hesitancy in providing loans, further hamstringing activity. Given these factors, several recent sales involving less-than-best office properties saw discounts of 35-60% relative to what likely would have been achieved before early 2020.
In December, a private family office purchased 400 and 450 Brand Blvd. from Kennedy Wilson for $58 million ($130/SF). The two buildings comprise 440,800 SF, with 364,000 SF of office space and 76,800 SF of retail space. The properties were 61% leased and marketed as a value-add opportunity. Tenants had a weighted average remaining lease term of 5.5 years. No loan was recorded with the sale, making it likely that the buyer paid cash.
The transaction represents a 60% loss for Kennedy Wilson, having acquired the buildings in May 2017 for $144 million ($325/SF). It also sold well below its previous sale price in January 2004 for $117 million ($265/SF).
The most prominent news of distress centers on Downtown Los Angeles. In 2023, Brookfield Properties, downtown's largest landlord, defaulted on 777 Tower, Ernst & Young Plaza, and Gas Company Tower. Ernst & Young Plaza went into receivership in May, and Gas Company Tower went into receivership in April. 777 Tower is on the market.
In July 2023, Gas Company Tower was appraised at $270 million, around 40% of its last valuation of $632 million in 2021. The value is also well below Brookfield's $465 million in loans on the property. In December, Ernst & Young Plaza was appraised at $210.7 Million, less than half its valuation of $446 million three years ago. As loans come due on other office properties, more landlords will likely default.
Most future sales will likely see a discount in pricing to what was possible before early 2020. However, a handful of recent sales show that some buyers are willing to pay elevated pricing for select properties.
FanDuel, a popular gambling platform, acquired 9000 Wilshire Blvd. from Skanska for $71 million ($1,410/SF) in December. Completed in 23Q2, the 50,300-SF building is the newest in Beverly Hills, driving the pricing achieved. Another likely factor that led to strong pricing was that FanDuel purchased to occupy. Owner/user sales have been one segment of the local office market that has seen pricing hold up better relative to transactions involving multi-tenant assets.
Average market pricing is forecast to see a peak-to-trough decline of around 25% by 2025. The market faces numerous headwinds. Vacancy is expected to rise further during the next several years, which should soften asking rents. Uncertainty around the long-term trajectory for tenant demand due to the increased use of hybrid work strategies persists. Additionally, as interest rates are anticipated to stay elevated in the near term, debt, even when available, will remain more costly.
Here are several graphs illustrating the current office market in Los Angeles County:
Full Los Angeles County Commercial Office Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/11...
Access Exclusive Commercial Real Estate Market Reports in The United States Here: https://www.manuelangeles.com/
Contact me for a complimentary market analysis and valuation report for your commercial property, along with up-to-date commercial real estate listings (on-market and off-market): https://api.leadconnectorhq.com/widget/bookings/maexp
Thank you.
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Best Regards,
Manuel Angeles
Broker Associate
CalDRE #01985856
Mobile: (323) 900-5258
Email: manuel.angeles@expcommercial.com
Website: www.manuelangeles.com
Address: 155 N. Lake Avenue, 8th Floor, Pasadena 91101
Exp Commercial of California, Inc.
CalDRE #02134436
Office: (855) 451-1236, ext 300
Website: www.expcommercial.com
Address: 2603 Camino Ramon, Ste 200, San Ramon, CA 94583
| Commercial Real Estate Brokerage: Multifamily, Retail, Office, Mixed-Use, Industrial, Hospitality, Self-Storage, Land |
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