Impact of COVID-19 continues
After falling to a low of 3.6% in December 2019, the unemployment rate in Los Angeles jumped to 11.0% in December 2020 due to COVID-19 and the impact to the leisure/hospitality industry which lost 174,700 jobs in 2020 and accounts for 41% of total job contraction in the region.
Although the vacancy rate ticked up 110 basis points since year-end 2019 it still remains below the highs seen in the last recession. There has been an increase in sublease space over the previous year as many firms are shrinking their office footprint and switching a portion of their workforce to permanently work from home.
Average rent growth slows, but remains steady
The direct weighted average asking rent increased to $43.83 PSF market-wide (up 2% year-over-year). This is due to an influx of higher quality space being marketed and is not an indication of rising demand.
The pandemic has increased demand for at-home entertainment, with media firms competing to spend billions of dollars in new content. This has led to rising demand in certain submarkets.
Office investment sales volume off pace compared to 2019
Just over $1.8 billion of office buildings sold during 2020 as the outlook for office investment remains murky. The largest sale of the year was the iconic 72 story US Bank Tower. Silverstein Properties purchased the building for $430 million ($300 PSF) and is a bet on the long term prospects of Downtown Los Angeles.
Slower forecasted local employment growth due to COVID-19 will likely cause some buyers to hold or push back on pricing while some sellers could pull listings and pause.