Los Angeles Commercial Real Estate Trends – Q1 2025 Market Update

April 1, 2025

Understanding the Shifts in LA’s Commercial Property Landscape

The Los Angeles commercial real estate market continues to evolve in response to shifting workplace expectations and broader economic adjustments. During the first quarter of 2025, we observed meaningful developments across the office and industrial sectors that signal new patterns in demand, pricing, and opportunity.

This report outlines the most critical changes and what they could mean for tenants, landlords, and investors across Greater Los Angeles.

Office Sector Update: High Vacancy and a Shift to Flexibility

Office vacancy rates in Los Angeles rose to 24.5 percent in Q1, an increase of 150 basis points compared to the same time last year. This rise reflects a combination of long-term remote work trends and businesses downsizing their physical footprints ahead of California’s return-to-office requirements beginning July 1.

While the traditional CBD corridors remain soft, activity is gradually picking up in suburban nodes. Companies are looking to suburban markets like Culver City and Playa Vista for flexible, lower-cost office solutions that support a better work-life balance for employees. These markets are showing early signs of reactivation as businesses seek modern spaces with optionality in size and lease terms.

The result is a gradual redistribution of demand, creating opportunity for repositioning in both core and fringe submarkets.

Industrial Sector Overview: Increased Availability and Tenant Leverage

After a multi-year run of historically low vacancy, the industrial market in Los Angeles County is starting to stabilise. Vacancy reached 6.9 percent in the first quarter, which offers welcome breathing room for tenants. Asking rents remain steady at $1.39 per square foot, but with more space now available, tenants are finding increased flexibility in negotiations.

Although demand for last-mile and logistics properties remains strong, the current market dynamics allow for greater tenant choice, reduced competition, and more favourable lease terms. Businesses considering expansions, subleasing, or relocations can now do so without the premium pressures seen in previous years.

Commercial Investment: Confidence in Adaptable Assets

Despite the shift in leasing behaviour, investor appetite remains strong. Q1 2025 saw $385.8 million in industrial property sales, with the average price per square foot at $323. Investors are showing particular interest in properties that offer future flexibility, such as buildings with zoning allowances for mixed-use or potential for creative conversions.

Assets with adaptability to evolving tenant needs are being prioritised, as market participants take a long-term view of how work, logistics, and retail use may continue to converge.

Where the Opportunity Lies in Q1 2025

Sector	Current Conditions	Key Opportunity
Office	High vacancies, remote shift	Lease restructuring, submarket discovery
Industrial	More supply, stable rates	Tenant leverage for expansion
Investment	Focus on versatile use	Target repositioning opportunities
Retail	Steady in prime locations	Neighbourhood centres with service focus

Conclusion

Los Angeles commercial real estate is not in decline. It is recalibrating to meet the changing demands of modern business. For those who move strategically, this market offers opportunities to secure favourable lease terms, acquire flexible-use assets, and position holdings for long-term value.