Old Stock Getting Iced Out Amid Glacial Pace Of Return To Office

Office occupancy in top U.S. metros reached 42% of pre-pandemic levels in the week ending April 4, the latest data from Kastle Systems’ card-swipe readers show. In the Los Angeles metro, about 39.5% were back at their desks. 

As LA office owners and employers aim to reach at least the national average, the Hollywoods are doing better than the Miracle Miles, and factors like amenities, old stock and the industries occupying office space play into which neighborhoods are succeeding and which falter.

This is the defining quarter for most major companies regarding the reopening of their offices and having space available for their workers, Raise Commercial Real Estate Managing Director Owen Fileti said.

Amid that backdrop, in the heart of Hollywood, pedestrian traffic is catching up to pre-pandemic levels and, in some places, was up to as much as 80% of 2019 totals at the end of 2021. Stationary pedestrian traffic counters are located in tourist areas — Hollywood and Highland, Hollywood and Schrader, Selma and Cahuenga, and Sunset and Vine — but aren’t far from business hubs, either, like the WeWork on Sunset and Vine or the CNN building on Sunset.

“It is challenging to ascertain just by looking at somebody whether they live here, work here or are a visitor, but what I will say is, the numbers are ticking up,” said Kathleen Rawson, CEO of the Hollywood Partnership, a business improvement district that covers much of the core of Hollywood. 

“We're seeing more and more businesses, including large employers such as Netflix, encouraging their employees to return to the office, and they are doing a lot of work to get employees interested in coming back,” Rawson said, adding that most are employing a hybrid model at the moment. 

A report from Savills found that LA’s average availability rate was 25.3%. Among those beating that average are some neighborhoods that have been mentioned throughout the pandemic for outperforming the rest of the city, along with well-known hubs for industries like entertainment, tech and media, including Hollywood, Burbank and Culver City.

Fileti pointed to several significant leases signed in the first months of 2022, including a Google lease in Playa Vista for about 53K SF and a CAA lease that would relocate its headquarters into 400K SF at an as-yet-unbuilt Century City office tower — about 100K SF more than its current headquarters nearby.

Century City has thrived during the pandemic, he said, despite having a largely high-rise stock, which hasn't been a popular building type over the last two years. It also has more traditional tenants, including law and financial services firms, as opposed to the entertainment and media companies that leased up space and buoyed the market throughout the last two years. Century City’s availability rate is just under 18%, the third-lowest in the greater LA area, according to Savills. 

While some traditional tenants have clung to remote work, Fileti said the diverse tenant profile in Century City could be helping occupancy. The area offers the ability to connect with people in the same industry and offers access to a range of services. 

Hollywood has emerged as a place where workers are returning at least some of the time. Prior to the pandemic, Hollywood was rising as a hub for streaming entertainment companies, especially Netflix, which planted a big flag in the neighborhood and leased up entire buildings as it moved to meet the increasing demand for streaming content.

Netflix is among the employers making sure they have updated, renovated, amenitized space to lure tenants back, experts said. The “flight to quality” mantra still rings true, Savills’ Michael Soto said. 

“High-profile companies are leasing in brand-new or not-yet-built buildings,” Soto said. “Companies that can do it are attracted to new properties.” 

“A lot of companies that have thrived and are expanding their office footprint are being way more intentional with how they reset their office,” Fileti said.

The office has to be an enticing place, a place for work to get done and a place that can keep up with some of the comforts that people have gotten accustomed to while working from home, he added.

Conversely, older, less updated buildings are feeling the burn. Avison Young Vice President Chase Gordon, who does office leasing in Hollywood, said that generally speaking, older buildings that offer small elevators, no outdoor space and less sophisticated ventilation systems are sitting largely vacant. 

“After the last market cycle or so, [Hollywood] pivoted away from more traditional, drop-ceiling office,” Gordon said. “It's largely creative now with higher ceilings.”

The return to the office is happening on a company-by-company basis, and the Kastle data shows that more than 60% of pre-pandemic office users still haven't returned to in-person work. Even the shiniest office with the biggest terraces and the widest variety of kombucha on tap might not have what it takes to get employees back in the office, as much as their bosses want them to be there. 

“A lot of employees don't want to come back,” Gordon said. “You have to kind of entice them, and if you don't have a desirable, enjoyable, attractive place to work, that makes that even more of an uphill effort.”