The commercial real estate market in Los Angeles, one of the largest and most dynamic markets in the U.S., has been undergoing significant changes as 2025 progresses. With economic uncertainty, changing work dynamics, and evolving consumer behaviors, the market is facing both challenges and opportunities across various property sectors.
Economic Uncertainty and its Impact on Commercial Real Estate
In 2025, Los Angeles is grappling with a sluggish national economy. According to data from the U.S. Bureau of Economic Analysis, the national GDP growth rate slowed to just 2.1% in the first quarter of 2025, down from 3.4% in 2024. This slowdown, coupled with rising interest rates and inflationary pressures, is impacting businesses and investors in the commercial real estate sector.
The effects of this economic uncertainty are being felt across several key areas of commercial real estate. In particular, office spaces, retail properties, and certain industrial sectors are showing signs of struggle as businesses reconsider their real estate needs in light of shifting market conditions.
Office Market: Vacancy Rates Climb as Remote Work Continues
The office sector has been one of the hardest-hit in the Los Angeles commercial market. Following the COVID-19 pandemic, many businesses adopted hybrid or fully remote work models. This shift has led to a dramatic decrease in demand for traditional office spaces, particularly in downtown Los Angeles.
According to a Q1 2025 report from Cushman & Wakefield, office vacancy rates in downtown Los Angeles rose to 19%, the highest level in over a decade. As more companies embrace remote and flexible work models, the demand for large office spaces has dwindled. Many companies are opting for smaller, more flexible workspaces or, in some cases, completely forgoing traditional office leases in favor of remote work environments.
This trend has raised concerns among landlords who are struggling to fill office buildings with tenants. To counter this, many developers are pivoting to mixed-use developments, combining office space with residential and retail components to create more vibrant, multi-functional buildings. This shift reflects a broader trend in Los Angeles’ commercial real estate market toward more versatile spaces that can cater to a variety of uses.
Retail Market: The Changing Face of Consumer Behavior
The retail market in Los Angeles is also undergoing significant transformation as consumer behavior continues to evolve. The rise of e-commerce has accelerated since the pandemic, and many brick-and-mortar retailers are finding it harder to compete with online shopping platforms. According to the National Retail Federation (NRF), e-commerce sales grew by 16% in 2024, and this shift is expected to continue in 2025.
While traditional shopping malls in Los Angeles, such as Beverly Center and South Coast Plaza, have struggled with declining foot traffic, some retail sectors are adapting by shifting focus toward experiential retail. Retailers are increasingly investing in immersive, interactive experiences that blend shopping with entertainment, dining, and cultural activities. This shift is reflected in new developments like The Grove and Westfield Century City, where shopping is just one part of a broader lifestyle experience.
Additionally, retailers are adopting a more agile approach to space utilization. Pop-up shops, which offer temporary retail spaces for limited-time offerings, are becoming more common in Los Angeles. These pop-ups allow brands to test markets and connect with consumers in a more dynamic, low-risk way.
Industrial Sector: Resilient Demand for Logistics and Distribution Space
While other sectors of commercial real estate are facing challenges, the industrial sector in Los Angeles remains one of the strongest in the market. The rise of e-commerce and the increasing demand for efficient supply chains have made Los Angeles one of the most sought-after locations for logistics and distribution centers.
As of 2025, vacancy rates for industrial properties in Los Angeles are at historically low levels, with some submarkets in the Inland Empire seeing vacancy rates as low as 2%. With proximity to the Port of Los Angeles and other key transportation hubs, the region remains a critical logistics center for both domestic and international companies.
In particular, companies involved in last-mile delivery, which focuses on getting goods from distribution centers to consumers, are driving demand for industrial space. This sector’s growth has led to the development of new industrial parks, particularly in the eastern and southern parts of Los Angeles County, where rental rates have risen steadily.
Conclusion: A Complex but Resilient Market
Despite facing significant challenges, the Los Angeles commercial real estate market in 2025 remains resilient, with certain sectors adapting to new realities. The office and retail sectors face ongoing disruption from shifting work patterns and consumer behavior, but the industrial sector continues to thrive due to demand for logistics and distribution space.
Developers and investors in Los Angeles will need to remain flexible and innovative in order to succeed in this evolving market. The future of commercial real estate in Los Angeles may lie in mixed-use developments, experiential retail, and adaptive reuse of existing properties. These trends represent opportunities for savvy investors and real estate professionals to capitalize on changing market dynamics.
