Ponder what the COVID-19-inspired, work-from-home revolution has done to owners of 325 million square feet of Southern California office space.
My trusty spreadsheet looked at office space data for Los Angeles and Orange counties and the Inland Empire compiled by the Cushman & Wakefield brokerage. At the end of 2019, just before coronavirus was going to upend the economy, Southern California had 41 million square feet of empty offices. That was 13% vacancy.
Come June 2023, landlords were stuck with 68 million square feet of unleased space – or 21% vacancy.
So over four-and-a-half years and a battle with a global pandemic later, there are 27 million extra square feet of unused cubicles, conference rooms and coffee corners.
That 67% bump of empty Southern California space equals roughly all of the office space – filled and vacant – in either Memphis or New Orleans or Tucson.
Consider this local vacancy surge by metropolitan regions because it’s bigger than just downtown L.A.
Los Angeles County added 20.7 million square feet since 2019, a 73% jump. Orange County’s up 6.3 million, or 57%. And the Inland Empire, not exactly a business-headquarters hub, added 300,000 square feet of vacant offices, or 21%.
Plus, empty office space is no Southern California quirk. Nationwide, vacancies grew 50% in the pandemic era, jumping to 19.2% from 13%.
Towering trouble
Think about all that unoccupied Southern California real estate added in the pandemic era. Then think about the iconic U.S. Bank Tower in downtown L.A.
The region’s 67% boost in empty offices could theoretically fill 11 floors of the 73-story, 1.4-million-square-foot landmark.
This exodus from local offices isn’t about fewer jobs. Employment in the four-county region was at a record 8.04 million in May 2023 – 48,000 workers above 2019’s end.
Simply put, working at home killed the demand for offices. That adds up to a massive economic headache. Fewer tenants equals less cash flow.
The McKinsey consultancy projects an $800 billion loss in office property values globally due to remote work.
Locally, that’s why this year we’ve seen landlords default on mortgages on two high-profile office properties in Los Angeles – Gas Company Tower and 777 Tower. And that’s what behind twin Orange County office towers sold at a deep loss. And it’s the backdrop for two Santa Ana office buildings being demolished, to be replaced by warehouse space.
The purported “back to the office” movement seems like more talk than action.
Neighborhood nuance
So where are the region’s neighborhood hot spots for empty offices?
It’s the Westside of Los Angeles and the area surrounding John Wayne Airport in Orange County – when considering total vacant space. Or, it’s the non-central business district of LA’s downtown and its nearby Mid-Wilshire district.
Let’s look at empty offices in 16 key markets, ranked by the total size of vacant space …
LA West: 13.7 million square feet are empty, or a 24% vacancy rate (fourth highest of the 16 markets).
OC airport area: 8 million square feet or 20% (No. 8 rate).
LA South: 7.5 million square feet or 24% (No. 5 rate).
LA Downtown Central: 7.2 million square feet or 26% (No. 3 rate).
LA Tri-cities: 5.9 million square feet or 22% (No. 6 rate).
LA North: 5.7 million square feet or 18% (No. 10 rate).
LA Non-central business district: 4.2 million square feet or 32% (No. 1 rate).
OC South: 3.9 million square feet or 18% (No. 11 rate).
OC Central: 3.8 million square feet or 20% (No. 7 rate).
LA Mid-Wilshire: 3.6 million square feet or 29% (No. 2 rate).
LA San Gabriel Valley: 1.2 million square feet or 10% (No. 13 rate).
OC West: 873,743 square feet or 20% (No. 9 rate).
OC North: 822,266 square feet or 15% (No. 12 rate).
Inland Empire East: 790,713 square feet or 9% (No. 15 rate).
Inland Empire West: 777,628 square feet or 10% (No. 14 rate).
Inland Empire South: 332,161 square feet or 8% (No. 16 rate).
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
Source: Orange County Register
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