Plans to build an office tower overlooking the Los Angeles River in the city's downtown Arts District have been canceled due to massive office vacancies in the trendy neighborhood.
New York real estate developer Tishman Speyer pulled the plug on a 10-story office and retail building on Bay Street near Santa Fe Avenue. In a letter filed on May 29, the Ministry of City Planning officially ended the approval process for the project because the developer had allowed the application to lapse.
Tishman Speyer's withdrawal comes at a time of high vacancy rates in many office markets across the country, including downtown Los Angeles. Since the pandemic led to a wave of remote work, many companies have halted planned office expansions or downsized space once their leases expire. The economic uncertainties that followed the pandemic also caused some companies to halt growth.
While some professional firms in industries like law and finance have expanded their offices recently, the technology and entertainment industries that boosted LA office leasing before the pandemic have seen significant declines in office space, says Michael Soto , director of research for real estate brokerage. Savills.
The Arts District in particular, with its glamorous industrial atmosphere, owes much of its growth to the tech and entertainment companies, which flocked to the gritty neighborhood east of downtown before the pandemic. Some office buildings completed since the pandemic waned are vacant and would likely have competed with Tishman Speyer's planned 20,000-square-foot tower for tenants, Soto said.
These recently completed offices have contributed to the increase in overall Arts District office space vacancy. Real estate mediation according to CBRE the Arts District was more than 50% vacant in the first quarter of this year, well above the downtown central business district's nearly 30% vacancy rate — which is also considered high.
“Some of the big tech companies that might have been interested in the Arts District have really backed off,” Soto said, after realizing they may have reserved too much space before the pandemic sent employees home.
“The entertainment and media sector is currently in a correction,” he said. “The entire sector is coming out of the big boom prior to the strikes and that is causing a drop in demand for space.”
The Tishman Speyer site on Bay Street is now home to a brick office and industrial complex previously occupied by Hyperloop One, a futuristic, high-speed transportation system originally imagined by Tesla and SpaceX billionaire Elon Musk. Company shut down last year after moving its headquarters to another location in the Kunstkwartier in 2022.
“The Arts District is probably a strong market in the long term,” Soto said, “but there are certainly issues right now.”
