For office tenants and investors eyeing the Los Angeles market, now may be the opportune moment to capitalize on favorable market dynamics and valuations. Recent transactions hint at a newfound price stability, prompting experts to suggest that the time to act might be upon us.
Kevin Shannon from Newmark, a leading investment sales broker, notes a surge in capital seeking investment opportunities, underlining the increased competition for deals. December witnessed significant sales activity across different segments of Greater L.A.'s landscape:
- Kennedy Wilson's sale of 400 and 450 North Brand Boulevard in Glendale for $60 million.
- Carolwood's acquisition of the AON Center in Downtown L.A. at approximately $134 per square foot.
- Harbor Associates' purchase of 1640 South Sepulveda Boulevard in Westwood for $271 per square foot.
What's striking about these transactions is the substantial discount they represent compared to previous sales, ranging between 50 and 60 percent. Some industry insiders speculate that these prices might constitute the bottom, with expectations of a sustained period at this level.
Adam Rubin of Carolwood sees their acquisition of the AON Center as setting a benchmark, providing clarity amidst uncertainty. This sentiment resonates amid a challenging year that witnessed a 51 percent decrease in office investments compared to 2022.
However, fewer transactions mean fewer comparable data points, posing a challenge for prospective buyers in gauging fair market value. Despite this, the recent sales serve as early indicators of potential market stabilization, albeit varied across submarkets.
Looking ahead, Brookfield Properties' listing of 777 Tower in Downtown L.A. offers insight into future market movements. Despite being 52 percent leased, the property attracted significant interest, suggesting investor confidence despite occupancy concerns.
For both tenants and investors, maximizing leverage in this market requires strategic action. Occupancy rates significantly impact property valuation, with every percentage increase in occupancy potentially adding substantial value. Therefore, for tenants seeking space, negotiating favorable lease terms amid the current market downturn could yield significant cost savings. Similarly, investors should leverage the current pricing environment to acquire assets with strong upside potential, focusing on properties with attractive occupancy rates and long-term value prospects.
