Recent third quarter data surrounding L.A.’s commercial real estate investment activity from Avison Young shows some drastic figures – though principals and an analyst from the global commercial real estate services firm say context is key.
From the start of the year through the third quarter, investment volume for development and land sales rose 280.6%, compared to the same period in 2024.
Peter Sherman, principal and head of U.S. multifamily and development, emphasized the difference between an uptick in these types of sales versus a rise in actual development activity.
Given the multi-year process it typically takes to entitle a project in L.A., Sherman said current buyers are looking ahead, “anticipating lower interest rates and a better environment down the road that they’ll be able to build into – just not today.”
Aside from these sales, L.A.’s office, multifamily and retail investments also saw increased volume year-to-date compared to 2024. While this is positive for the county, it’s not necessarily that we’re off to the races as much as we are catching up.
Following the interest rate spike in the summer of 2022 and the closing of deals that were already underway, there was an era of “price discovery,” Sherman said, in most of 2023 and into 2024.
“Nobody knew what anything was worth, what anything should be priced at, and it absolutely killed investment sales, not just here, but across the country,” he added.
As other major metros in the U.S. began to accept the new cost of capital and started to become active again, L.A. got hit with Measure ULA – further discouraging activity.
“The Mansion Tax takes such a chunk out of the profit… and that kept a lot of sellers on the sideline for a longer period of time,” Sherman said. “Now that everybody has accepted the reality that the Mansion Tax is not going away anytime soon, they realize it’s time to start transacting again and that’s what we’re seeing in 2025.”
Thus, when we see that this year, L.A.’s investment sales volume increased 65.5% from the first three quarters of 2024 compared to national growth of 12.4%, it makes a bit more sense.
What also added to L.A.’s activity has been the availability of debt and emergence of new debt funds, Jay Maddox, a principal focused on capital markets at AY, said.
As the number of sales and overall volume rise and recover, Sebastian Bernt, market intelligence analyst for AY’s Western Region, said “price per square foot isn’t quite there.”
In 2025, the office price per square foot ranged from $280 to $670 for the middle 40% of transactions, compared to $360 to $760 in 2019 prior to the Covid-19 pandemic.
Looking at the 146 office transactions this year – for a total of $2.7 billion – Maddox said, “a lot of that is likely lender sales of assets they took back,” which led to some sizable transactions in downtown.
“That kind of relates to what we might expect to see in 2026 and possibly even 2027 as we have billions of dollars of loans that are maturing, and that creates an urgency to transact one way or the other,” Maddox added.
Nevertheless, cap rates for the office sector remain the highest of the asset classes in L.A. with the middle 40% ranging from 7.34% to 9.16%. While still elevated, this marks the first downward trend since cap rates began to rise in 2023, though we’ll need to see where the numbers land definitively at the end of the fourth quarter. Previously, cap rates stayed below 6% for L.A. office from 2015 to 2022.
What’s missing from Los Angeles’ office recovery seems to be institutional capital. So far this year, institutional buyers have accounted 20.3% of L.A. deals compared to 61.8% being with private buyers, AY data shows.
“What we’ve seen is that in emerging recovery markets, typically the private capital is first to jump in,” said James Nelson, principal at AY and head of U.S. investment sales. “…But when we look at big office trades, it’s the institutional players who can really move the needle, so that is future upside.”
