Los Angeles, CA – The Office Space Market Struggles as Remote Work Dominates
The commercial real estate market in California has been grappling with new challenges in 2025, particularly within the office sector. The rise of remote work and shifting economic dynamics have caused office space vacancy rates to reach decade-high levels, marking a significant shift in a market that was once thriving.
According to the latest quarterly reports from industry leaders like CBRE and JLL, the vacancy rate for office spaces in Los Angeles is now sitting at 17.0%, up from 16.2% in the previous quarter. This marks a significant departure from the pre-pandemic era, when office buildings in downtown LA were in high demand and often saw limited vacancies. The increased vacancy rate is being attributed to several factors, including a long-term shift to remote work, the rise of hybrid work models, and the slowdown in business expansion during economic uncertainties.
Factors Contributing to the Slowdown in Demand
The primary factor contributing to this commercial real estate downturn is the continued dominance of remote and hybrid work models. During the pandemic, businesses quickly adapted to remote work, and many employees have since grown accustomed to the flexibility it offers. Now, as businesses return to normal operations, hybrid work has become a standard practice, allowing employees to work part-time from the office and part-time from home. Consequently, many companies no longer see the need for large office spaces, leading to reduced demand.
Additionally, some businesses are opting for more flexible office spaces or coworking spaces, which provide shorter lease terms and greater flexibility to adjust space as needed. Coworking giants like WeWork and Regus are seeing a resurgence in interest from companies looking to scale back their office footprints while still providing employees with collaborative spaces for in-person meetings and team collaboration.
Another factor affecting the office market is the economic uncertainty that has followed the pandemic. While the U.S. economy has been recovering, inflation, rising interest rates, and the global economic climate have made businesses more cautious in terms of expansion. Many companies are holding off on new office leases or are downsizing their existing spaces to cut costs.
Sublease Markets: A Growing Trend in Office Space Usage
One of the most notable trends in Los Angeles’ office real estate market is the increase in subleasing. According to a recent report from CBRE, the amount of office space available for sublease in Los Angeles has surged by 25% year-over-year. Companies that signed long-term leases prior to the pandemic are now trying to unload unused space through subleases, in some cases at significantly reduced rates.
Subleasing offers businesses an alternative to giving up their office space altogether while still allowing them to cut costs. For example, large corporations that have downsized their operations may sublet portions of their office to smaller companies, startups, or remote workers who need temporary space. This trend has led to a glut of high-quality office space on the market, but the challenge remains: there is still not enough demand to fill these vacancies, as many companies continue to adapt to remote or hybrid work.
While the subleasing market has created opportunities for tenants looking for shorter-term leases or cost-effective office spaces, it has left many commercial property owners struggling to find long-term tenants. Some landlords are exploring creative solutions, including converting office buildings into residential units or mixed-use developments to address the changing needs of tenants and their businesses.
Mixed-Use Developments and Adaptive Reuse: A Potential Solution
To cope with rising vacancy rates and a sluggish office market, many property owners are turning to mixed-use developments and adaptive reuse projects. Los Angeles, in particular, has seen a wave of office-to-residential conversions, as older office buildings are being transformed into apartments or condominiums. This approach allows developers to make use of vacant spaces while addressing the city’s growing demand for housing.
Downtown LA, which has historically been a commercial hub, is one area that has seen significant office-to-residential conversions. In fact, according to the Los Angeles Downtown Center Business Improvement District (DCBID), nearly 2,000 units have been converted in the last year alone. The downtown area is undergoing a transformation as more office buildings are being repurposed for residential use, with luxury apartments and mixed-use complexes now dotting the skyline.
While this strategy may help ease the strain on the commercial real estate market, it also presents challenges. Converting office buildings into residential spaces requires significant investment and changes to the building’s structure to meet housing codes. Additionally, some parts of the city have seen gentrification concerns, as the influx of luxury apartments may lead to rising rents and displacement of long-time residents. The city’s planning department is working to balance the need for housing with concerns about affordability and displacement.
The Future of California’s Commercial Real Estate Market
Despite the challenges, experts remain cautiously optimistic about the future of California’s commercial real estate market. While the office sector is facing pressure from remote work trends, other sectors such as logistics, industrial, and retail properties continue to see growth. In particular, the e-commerce boom has driven strong demand for industrial properties, including warehouses and distribution centers, as businesses look for larger spaces to accommodate their online operations.
Additionally, the retail market in California is experiencing a revival as the state’s economy recovers and consumer spending increases. Retailers are beginning to invest in brick-and-mortar stores again, especially in high-traffic areas like shopping malls and entertainment districts. This has led to a resurgence in retail leasing activity, particularly for experiential retailers, restaurants, and entertainment venues.
In the coming years, it is likely that commercial real estate in California will continue to evolve. The key to navigating this changing landscape will be flexibility and adaptability. Property owners who can pivot their spaces to accommodate changing demands—whether through repurposing office space for residential use, adding coworking facilities, or investing in retail and industrial properties—will be in a stronger position to thrive.
With the rise of proptech (property technology) solutions that streamline leasing, construction, and property management, the real estate industry may see further innovations in how space is utilized and marketed. As businesses and consumers continue to adjust to new norms, the real estate market will continue to be shaped by technology, sustainability, and shifting societal needs.
