Commercial real estate investment activity in Los Angeles looked ugly last year, but the horror is rearing its ugly head in 2024.
Commercial real estate sales in Los Angeles County are down 18.4% this year compared to the first three quarters of 2023, according to a new market trends analysis by NAI Capital.
SEE ALSO: Ares to pay $147 million for Miami-Dade Industrial Park
This sharp drop in activity is strange compared to the city of Los Angeles, where sales were down nearly 40% year-over-year and $1.9 billion below 2023 sales at this time last year.
A variety of factors caused or contributed to this large decline, including falling real estate values, inflation, the Federal Reserve’s decision to keep interest rates high for much of the year, and government fees on transactions. According to NAI Capital, LA’s ULA measure, which imposes a 4% tax on transactions over $5.15 million and a 5.5% tax on transactions over $10.3 million, took effect last year and is particularly likely to have a chilling effect on activity. caused it.
Industrial and office sales in the city were particularly weak. Industrial sales are down 63.2% so far this year, office sales are down 45.1%, while retail and multifamily transactions have seen relatively modest declines of 32.6% and 14.8%, respectively.
Few stories epitomize the city’s dire office situation better than the story of an office tower in downtown Los Angeles. Many of them have recently faced some kind of financial crisis. That includes the 52-story gas company tower, which has been looking for a new owner since it went into receivership this spring. Los Angeles County is inching closer to acquiring the tower for far less than its estimated $632 million price just a few years ago, but the deal has not yet closed.
Meanwhile, downtown’s 25-story 801 Tower traded for just $60 million in a loan sale in August, about $118 million less than the price seller Barings bought it for in 2014. It was cheap, a source told Commercial Observer at the time. Or the 40-story Union Bank Plaza, which recently sold for $80 million, about $30 million less than the seller, Waterbridge Capital, bought it for last year alone.
Offices are likewise the worst-performing asset class in Los Angeles County so far this year, up 55.4% year-to-date compared to the third quarter of 2020 in the midst of the pandemic, or 10%, according to the NAI report. It has lost over a billion dollars. .
“Los Angeles County’s office market continues to face a slow recovery,” the report said. “Landlords are offering significant concessions such as rent reductions and tenant improvement allowances to attract tenants, further reducing market values.”
Still, the median sales price per square foot for offices in the county rose 9.2% year over year, indicating the market may be adjusting to a new normal. The price per square foot of commercial properties in the county also rose 9.2% year-over-year, but sales volume remained 7.7% below 2020’s lowest level, according to the NAI report.
One of the most notable exceptions is One Call Group’s $39.2 million deal in August for just 11,124 square feet of retail space in Beverly Hills’ Golden Triangle neighborhood. The deal is valued at $3,524 per square foot, far above the county’s median sales price for retail real estate.
Industrial sales in the county have also declined 20.4% since the beginning of the year due to lower lease costs and continued high interest rates, according to NAI Capital. Median sales price per square foot for industrial real estate fell 16.6% sequentially and 9% year over year.
Looking forward, the report notes that several state laws could further impact market activity in LA, particularly Proposition 33, which aims to expand rent control in California and is opposed to It’s a measure on the November ballot that advocates say could hinder housing development. Real estate interests are also trying to gauge the effectiveness of AB 98, which will further regulate warehouse development across the state once it goes into effect in early 2025.
Nick Trombola can be reached at ntrombola@commercialobserver.com.
