With vacancies soaring, developer abandons plans for L.A. Arts District office tower

Plans to build an office tower overlooking the Los Angeles River in the city’s downtown Arts District have been canceled in the face of vast 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 May 29, the Department of City Planning officially terminated the approval process for the project because the developer had let its application lapse.

Tishman Speyer’s pullback comes at a time of high vacancy in many office markets around the country including downtown Los Angeles. Since the pandemic prompted a wave of remote working, many companies have halted planned expansions of their offices or cut back on space as their leases expire. Economic uncertainties that followed the pandemic also induced some businesses to pause growth.

While some professional firms in sectors such as law and finance have bulked up their offices recently, the technology and entertainment industries that boosted L.A. office leasing before the pandemic have backpedaled markedly on office space, said Michael Soto, a director of research for real estate brokerage Savills.

In particular, the Arts District, with its glammed-up industrial vibe, has owed its growth largely to those tech and entertainment companies, which flocked to the gritty neighborhood east of downtown before the pandemic hit. Some office buildings that have been completed since the waning of the pandemic stand empty and probably would have competed with Tishman Speyer’s planned 222,000-square-foot tower for tenants, Soto said.

Those recently completed offices helped drive up overall vacancy in Arts District office space. Real estate brokerage CBRE said the Arts District was more than 50% vacant in the first quarter of this year, well above the overall vacancy of nearly 30% in downtown’s central business district — which is also considered high.

“Some of the big tech companies that may have been interested in the Arts District have really pulled back,” Soto said, having realized they may have committed to too much space before the pandemic sent workers home.

“The entertainment and media sector is in a correction right now,” he said. “The entire sector is coming off the big boom prior to the strikes and that’s causing a pullback in space demand.”

Tishman Speyer’s Bay Street property now holds a masonry office and industrial complex formerly occupied by Hyperloop One, a futuristic, high-speed transportation system originally fantasized by Tesla and SpaceX billionaire Elon Musk. The company shut down last year after moving its headquarters to another location in the Arts District in 2022.

“The Arts District is probably a strong market over the long term,” Soto said, “but it’s definitely going through its issues right now.”