The office real estate market in LA County is experiencing persistently rising vacancy rates and stagnant or declining rents due to reduced demand and economic slowdown. The increase in remote work following the COVID-19 pandemic, coupled with corporate workforce reductions, has led to a sharp drop in demand for office rentals. As a result, defaults and foreclosures among commercial property owners struggling to meet mortgage payments are also on the rise.

According to commercial real estate firm Jones Lang LaSalle on the 21st, as of the fourth quarter of 2024 (December 31), the average office vacancy rate in LA County reached 28.4%, up 1.9 percentage points from 26.5% in the same quarter of 2023, approaching nearly 30%. (See chart)

Office Vacancy Rates Near 30%... Defaults and Foreclosures on the Rise

While vacancy rates vary across LA County regions, most areas have seen an increase. By region, the Wilshire Center area, which includes LA’s Koreatown Mid-Wilshire district, saw its vacancy rate rise from 33.9% in Q4 2023 to 36.8% in Q4 2024, a 2.9 percentage point increase, nearing 40%. Rents in the Wilshire Center area slightly increased from $2.68 per square foot in Q4 2023 to $2.83 in Q4 2024. However, compared to other regions’ lower rent levels and factoring in inflation, this is effectively considered stagnant.

A Korean real estate insider commented, “In Wilshire Center, Jamison Services, the largest office building owner, is converting many of its properties into residential buildings, reducing supply. However, demand has dropped even more significantly, leading to rising vacancy rates and a slowdown in rent increases.” There has also been virtually no new office construction in the Wilshire Center area.

Across LA County, regions with vacancy rates exceeding 30% include Culver City at 41.5%—the highest—followed by Glendale (38.1%), Wilshire Center (36.8%), Miracle Mile (36.7%), Wilshire Corridor (36.4%), LAX/Century Boulevard (36.1%), Marina del Rey (36.0%), Santa Clarita Valley (35.3%), West LA/Olympic Corridor (34.6%), Burbank (33.2%), Fox Mile (32.8%), Playa Vista (32.6%), Long Beach Downtown (31.9%), LA Downtown (31.8%), Santa Monica (31.3%), East Valley (30.9%), and Beach Cities (30.9%).

Alongside rising vacancy rates, the financial distress of office building owners, including bankruptcies, is becoming a reality. According to the LA real estate industry, property owners—particularly those with office buildings and shopping centers—are increasingly abandoning properties as loans mature.

The surge in vacancy rates and declining rental income have caused property values to plummet, resulting in a growing number of “underwater” buildings—where the property’s value falls below the outstanding mortgage balance—forcing owners to hand buildings over to banks.

Property owners had hoped for Federal Reserve interest rate cuts of 0.75% to 1% this year, but with worsening inflation, Wall Street now anticipates only a single 0.25 percentage point reduction. Owners who borrowed at low fixed rates in the past are now facing difficulties as loans mature, requiring them to refinance at higher interest rates.

Banks and lending institutions believe that office vacancy rates are unlikely to return to pre-COVID-19 pandemic levels, leading to an increase in foreclosures of distressed properties. The overall rise in defaults is raising concerns about a domino effect that could drag down the value of commercial real estate across LA County.

The real estate industry predicts that throughout this year, the LA County office market will continue to see high vacancy rates, with rents either stagnating or declining.

<Hwandong Cho>