Commercial property sales in LA County spiral down 18%

Commercial property sales across greater Los Angeles have hit the bottom of the bucket, with office and industrial sales falling through the hole.

Commercial sales in Los Angeles County are down 18.4 percent since January, compared to the first three quarters of last year, the Commercial Observer reported, citing a market analysis by NAI Capital. And last year’s numbers represented a collapse from the previous year.

In the city of Los Angeles, the plunge in commercial deals was twice as bad with a nearly 40 percent year-over-year decline in sales — or $1.9 billion less than the same period last year.

Industrial and office sales in the city were hit especially hard. Industrial sales are down 63.2 percent so far this year, while office sales fell 45.1 percent.

At the same time, retail property sales in the city fell 32.6 percent, while multifamily deals declined 14.8 percent.

NAI Capital blamed the stark decline on falling property values, inflation, a Federal Reserve decision to keep interest rates elevated for most of the year, and government fees on transactions. 

L.A.’s mansion tax takes a 4 percent tax for deals over $5.15 million and 5.5 percent on deals over $10.3 million. Measure ULA, which went into effect last year, put a huge damper on sales, according to NAI Capital.

Across the county, offices were the worst-performing asset class, tanking 55.4 percent, or just over $1 billion year-to-date, compared to the same period in 2020.

“The office market in Los Angeles County continues to face a slow recovery,” the report said. “Landlords are offering substantial concessions, such as rent reductions and tenant improvement allowances, to attract tenants, further eroding market values.”

Despite the chill, the median per-square-foot sale price of offices in the county rose 9.2 percent year-over-year, indicating the market may be adjusting to a new normal. 

The price per square foot of retail properties in the county also rose 9.2 percent, according to NAI, though sales volume was still 7.7 percent below 2020’s level.

Industrial sales in the county dropped by 20.4 percent year-to-date because of declining lease rates and continually high interest rates, according to the analysis. The typical sale price per square foot of industrial properties fell by 16.6 percent quarter-over-quarter, and 9 percent year-over-year. 

The brokerage said state legislation could further impact commercial activity in the Los Angeles market.

Proposition 33, a measure on the November ballot which aims to expand rent control in California and which opponents argue could discourage housing development, could affect the multifamily sector.

Real estate interests are also waiting to see the effects of AB 98, which will further regulate statewide warehouse development once it goes into effect early next year.

— Dana Bartholomew

Read more

• LA leads the world in commercial property deals
• Good news/bad news: LA’s office market finds bottom 
• LA office building sales plummet 41% in 2023

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