For Downtown Los Angeles, a Pleasant Plot Twist

Downtown Los Angeles was facing impossible odds. But like some kind of civic Rocky, it has come battling back from the brink.

Such a statement would’ve been difficult to fathom over the past five years. Downtown office vacancy reached alarming levels in 2023 — topping 30 percent — as tenants grappled with remote work or fled to higher-quality space elsewhere in the region, most frequently to L.A.’s Westside. Hundreds of millions of dollars in debt tied to the office towers that form the city’s skyline began to mature, leading to serious financial distress and numerous defaults. Brookfield, once the largest office landlord in Downtown L.A., started handing back the keys to lenders. 

And all the while, with far fewer people going downtown to work every day, crime and homelessness ran rampant after 2020, fostering an even uglier perception of the area as chaotic, dirty and unsafe. 

Many of those challenges remain. The residential and multifamily markets are surging, with occupancy rates above even pre-COVID averages (nearly 91 percent, according to recent estimates), but downtown’s office vacancy rate remains stubbornly high — 27.5 percent in the first quarter of this year, according to a market report by Colliers. Homelessness and crime is still prevalent compared to other urban centers across the country. Yet, for many who work, live or own space downtown, momentum is beginning to shift toward what feels an awful lot like hope — or at least a light at the end of the recovery tunnel.

“I think people would be pleasantly surprised by the environment in many areas, because of what the perception is,” Kevin Bender, an executive managing director for JLL’s Southern California operations, said of Downtown L.A. “There are a lot of challenges — the biggest is demand. But I’m always optimistic on downtown, because I still think if properly supported, and if properly led from a civic standpoint, it has the greatest amount of amenities and infrastructure to be able to support a large, Class A workforce.”

Downtown L.A. is, inherently, a central business district, and getting a handle on office use is the key ingredient for a well-rounded comeback. Two major aspects of that ingredient have already begun to take shape: investment activity and increased public safety, particularly on public transit. 

Much of the recent activity has come from the sale or disposition of Brookfield’s distressed and debt-laden office towers — albeit for big discounts. A Chinese investor last July paid $120 million for Brookfield’s 52-story 777 Tower; L.A. County in December paid $200 million for the 52-story Gas Company Tower; Carolwood was recently in escrow to purchase the 41-story EY Plaza for $130 million; and Uncommon Developers just last month acquired Brookfield’s 52-story Figueroa at Wilshire tower for $210 million. (A $400 million loan tied to Brookfield’s Bank of America Plaza is still in special servicing.) 

Exact plans for many of those towers are still up in the air. Yet, landlords spending time and money on meaningful improvements will be a tide that lifts all boats, said Ryan Hekmat, Uncommon’s co-founder and co-managing partner.

While many assets across downtown are aging, conventional or otherwise unsuited to draw tenants back, Hekmat said Brookfield’s former towers are largely well positioned. Uncommon is therefore planning upgrades to Figueroa at Wilshire’s amenities and overall vibe to entice office tenants — such as adding a comprehensive gym facility, hosting social events and installing a “custom scents” ala luxury hotels — rather than overhauls to the building’s floor plates or façade. 

Extensive upgrades are happening at other downtown offices, however. JLL in March opened its redesigned digs at CalPERS and CommonWealth Pacific Capital’s City National Plaza, and Silverstein Properties in 2023 completed its $60 million renovation of U.S. Bank Tower, which it purchased during the height of the pandemic at a significant discount for $430 million. 

“In order to bring downtown back to being the best office market with the best quality of office in L.A., we need our neighbors to maintain that high bar as well,” Hekmat said. “We can’t be the only ones out there. And so we see that with Silverstein. We see that with the guys who own Carolwood, and we see that with CIM Group, and we see that with the folks that own City National Plaza. And, so, as they grow and as we grow, we can maintain that quality.”

A big rise in office leasing activity in the first quarter of this year, upward of 600,000 square feet of positive absorption, is another encouraging sign, said Harlan Strader, vice president of leasing for Silverstein. 

“Tenants just have more clarity and runway on what their workplace strategy looks like and how they’re accounting for hybrid work,” Strader said. “And they’re like, ‘Cool, we understand what our headcount is going to be Monday through Thursday. We understand how much space we need. We understand we need to prioritize conferencing and collaboration space and amenities.’ There was all this experimentation during COVID, and now I think there’s an equation out there that tenants understand and are translating into their business and real estate strategies.

“I think the strongest headwinds are behind us from a leasing perspective,” he added.

Indeed, market analysts opined that L.A.’s office market finally “bottomed” in the post-pandemic world after last year.

L.A. County is also putting its weight behind downtown via its purchase of Brookfield’s Gas Company Tower. Aside from the thousands of workers that the county plans to transfer into the building, there are hopes that the move will prompt even more investment and leasing activity in the area, L.A. County CEO Fesia Davenport told Commercial Observer in an email.

“In addition to saving taxpayers more than $1 billion and providing a safe, modern workplace for employees, L.A. County’s move to the Gas Company Tower is also a vote of confidence in Downtown L.A.,” Davenport said. “When fully occupied by thousands of county administrative workers, we expect the Gas Company Tower to be an important engine of economic revitalization for the area. The move will increase the daytime population of DTLA, adding vitality and providing an economic boost for local businesses.”

(The county still plans to maintain a presence at Downtown’s Civic Center and “enhance the vitality” of the nearby Grand Park area, Davenport added.)

Public safety, meanwhile, has also taken significant steps in the right direction, even if the road remains long and winding. Violent crime persists, but homicides were down 20 percent in the first half of the year, and the city is on pace for its lowest total in that category in nearly 60 years, the LAPD announced on July 9.

“The L.A. Police Department remains committed to supporting a safe and thriving Downtown L.A., and we recognize the role public safety plays in the area’s ongoing recovery,” a police spokesperson told CO in an email. “While crime is trending down, we continue to work closely with community stakeholders, local businesses and city departments to address public safety concerns.”

Arrests made during protests against federal Immigration and Customs Enforcement (ICE) agents last month were mostly focused downtown after some demonstrations turned violent. Vandalism, looting, damage to public and private property, police and cleanup cost an estimated $32 million, according to the city, though the scope of the wreckage was relatively limited. 

The L.A. County Metropolitan Transit Authority (Metro) is also attempting to address widespread complaints about safety on public transportation. Metro’s Board of Directors last summer approved a plan to create an in-house police agency rather than contracting officers from other city and county departments, which it has done since the 1990s. 

That plan includes hiring as many as 632 officers by 2029 to specifically serve the hundreds of thousands of daily commuters across the county. In May, Metro named William Scott, who served as San Francisco’s police chief for eight years, to lead the new department. 

Violent incidents at Metro stops in May dropped by 29 percent per 1 million boardings compared to May 2024, according to Metro spokesperson, and is currently at its lowest level since May 2019. 

Metro has also made improvements at stations like Pershing Square, Little Tokyo and Historic Broadway, including bright lighting, more frequent cleaning, reconfiguring certain spaces, keeping elevator doors open, playing classical music to disincentivize loitering and installing “smart restrooms,” the spokesperson told CO. “As a result, the number of reported incidents of fighting, vandalism and drug use at the stations decreased,” the spokesperson said.

Where apartment dwellers and office users go, retail will follow. The success of retail in Downtown L.A. has long been correlated with downtown office occupancy, particularly via daytime retail sales, according to Jim Dillavou, co-founder and principal of El Segundo-based retail development and investment firm Paragon Commercial Group.

Downtown’s apartment development boom during the 2010s boosted the population and also ignited nighttime vibrancy, Dillavou said. More than 50 percent of L.A.’s new apartments were built downtown throughout that decade, according to a recent RentCafe report. L.A. Live and The Bloc, large-scale entertainment and shopping concepts developed at the time, likewise helped legitimize downtown’s retail scene. 

That is, until the pandemic delivered a haymaker that put Downtown L.A. flat on its back.

“That growth trajectory was unfortunately stopped in its tracks due to COVID, and a rebound has been challenged as the daytime workforce population has struggled to re-emerge,” Dillavou told CO in an email. “We are seeing signs of resurgence as occupants return to the office in the business district and in certain pockets of downtown with strong residential populations such as the Arts District. However, the return of Downtown L.A. as a retail destination in Los Angeles remains in need of political and economic support from the downtown stakeholders.”

Downtown L.A.’s multifamily situation is more of a mixed bag. The good news is that residential occupancy, particularly in the Arts District, is remarkably robust despite the central business district’s challenges. Downtown occupancy was nearly 91 percent in the first quarter of this year, according to business support organization DTLA Alliance, significantly higher than even 2019’s first-quarter rate of 84.7 percent. What’s more, downtown’s population has more than tripled since 2000, per U.S. Census data. 

The bad news is twofold. First, L.A.’s housing affordability crisis remains alive and well, contributing to downtown’s dubious reputation, with the adjoining Skid Row area serving as the nation’s de facto homelessness capital (which naturally has public safety implications). Second is the amount of new supply is tanking further than it has since the late 2010s.

About 5,790 units, representing 19.1 percent of all new apartments citywide, were built downtown between 2020 and 2024, per RentCafe’s report. That’s a drop of more than 31 percent compared to the 2010s — one of the starkest declines of downtown development across the 50 major U.S. cities that RentCafe surveyed. 

Recent entitlement figures are even worse. In the first quarter of 2025, the city added just 1,325 units to its residential pipeline, according to Hilgard Analytics, a dive of nearly 57 percent compared to the 3,067 units permitted in the first quarter of 2024. 

Less red tape and enhanced tax credits could make the difference in enticing developers to build more in downtown, said J.C. Casillas, managing director of research for NAI Capital.

“Developers, and the market, like certainty,” Casillas said. “Nobody likes surprises. So I think if a market comes with a pro-business, pro-adaptive reuse attitude, that would be very helpful for especially office users that can say, ‘OK, here’s some tax credits, we can turn this property into a residential building or, by the same token, repurpose some of these buildings to include some of these amenities that would be very attractive to prospective office tenants.’”

Still, a smattering of decently sized multifamily projects is currently taking shape. Jamison plans to undertake a residential conversion of the 33-story LA Care Tower (formerly dubbed ARCO Tower); Onni Group began welcoming residents to its 54-story, 700-unit Olympic + Hill tower in early July, and has several other big housing projects in the works; and Relevant Group is planning a 531-unit project near the site of the famed (though recently destroyed) Morrison Hotel. 

Measure ULA, the city’s controversial transfer tax that imposed a 4 percent tax on deals over $5.15 million and a 5.5 percent tax on deals over $10.3 million, heavily affected commercial real estate investment, particularly multifamily asset sales across the city following its implementation in April 2023, Casillas said.

Overall, however, two massive pieces of motivation (or curveballs, depending on who you ask), that could drive Downtown L.A.’s recovery are on the horizon. L.A. is one of the host cities for the FIFA World Cup in 2026, and will host the Summer Olympics in 2028, the latter of which is projected to lure tens of millions of tourists to the city. The two global events are expected to bring nearly $600 million and up to $11 billion, respectively. 

L.A., and downtown in particular, has a long way to go and a short time to get there before the city can call itself a world-class metropolis for those global events. Yet not much else will act as a greater incentive for the public and private sectors to rally around the city’s core, Uncommon’s Hekmat said. 

“A few things give me optimism,” Hekmat said. “The first thing is that the county is completely planned around Downtown Los Angeles. We don’t have a choice. We need to get it back and flourishing. We have the Olympics coming up, World Cup coming up, and countless other events that are going to be dependent on Downtown L.A. When you have guests coming, you need to clean your house. 

“Our other level of optimism is new owners coming in at a reasonable basis for these buildings, who are focused and really driven to bring up the quality of the neighborhood and the buildings and bring in a new, fresh vibe. … Having neighbors who have the same intention as you to get there is what’s important. And I think that’s what drives the hope. That’s what drives our perception of the future being positive, because there’s fresh blood coming into downtown that really wants to invest in it.”

Nick Trombola can be reached at ntrombola@commercialobserver.com.