Downtown L.A.’s Rebound: A Marathon, Not a Sprint

An occasionally grimy and gritty sweep of faded theaters, empty storefronts and pockets of prolonged activity, Downtown Los Angeles offers a different perspective, block by block. But amid a recently rocky and decentralized Southern California office market, Downtown Los Angeles has always been an area on the cusp of something better. 

Forget Hollywood redemption stories: Downtown is a real estate resurrection that’s always about to happen.

And, just like the latest reboot, the giant, ​​56.5 million-square-foot downtown commercial real estate market is seeing more signs of turnaround and transformation, despite being battered by years of increased office and retail vacancies, devaluations and decreased demand.

“It’s not a ghost town narrative, the market is relatively active and transitioning,” said Marco Chung, senior market intelligence analyst for Avison Young. “Data shows there’s a significant chunk of capital working to redefine the office sector downtown.”

While the sprawling DTLA market may not be completely ready for its closeup during L.A.’s burgeoning mega-event era — including this summer’s World Cup and the 2028 Olympics — preparations for waves of visitors, and a recent surge in opportunistic investment, are shifting the narrative. 

“We have the world stage at our doorstep, and in many ways, it’s still the epicenter.” said Jessica Lall, CBRE’s downtown managing director.

Few metaphors literally and figuratively loom over downtown like the Oceanwide development, the “Graffiti Towers” that currently have two bids to rescue and complete the unfinished megaproject. With dignitaries for the Olympic Games set to stay across the street from Oceanwide at the Fig, any forward movement will be a “huge, real-time positive for downtown,” said Lall. “You can’t have those people staring at graffiti.”

The city’s arduous decision to spend $2.7 billion on the Convention Center expansion, which adds roughly 700,000 square feet of space — adjacent to Crypto.com Arena and the Graffiti Towers — has been criticized as a significant financial miscue in the lead-up to the Olympics. But it’s also been greeted by many in the real estate community as a sign of the city’s commitment.

“The city approving and immediately commencing construction of the convention center was what a lot of people in the private industry needed to see happen,” said Edgar Khalatian, a board member of the downtown advocacy group Central City Association. “I think that the city’s confidence has translated into a much more active real estate market.”

As Lall puts it, as more anchor locations get stabilized and attract reinvestment, and more efforts to connect these corridors succeed, momentum will continue. New destinations will help energize downtown, or bring more visitors into its orbit, including the new Lucas Museum of Narrative Art opening in September – 10 minutes from the University of Southern California campus – and the Colburn School’s new concert hall. 

The city’s transit system has also expanded, including a new D Line connecting downtown to UCLA underneath busy Wilshire Boulevard, making it easier to draw talent to downtown’s offices and ferry Angelenos in for entertainment. Recent ridership figures for Metro show Friday night and weekend activity has actually surpassed pre-pandemic levels. And an increasing number of schools and universities have opened satellite campuses or new buildings downtown, such as Michigan, Arizona State, UCLA and USC, seeking to create a critical mass of talent, human capital and access to employers. 

But, of course, with every step forward, there’s also challenges thwarting any large-scale transformation, including the massive scale of downtown and the surrounding areas. DTLA itself is just a quarter the size of Manhattan, and office vacancies have more than doubled since before the pandemic, rising from 14 percent in 2019 to over one-third today. Those post-COVID doldrums have also downgraded downtown’s dollar value; a report last fall from BAE Urban Economics found 54 office buildings in the neighborhood at immediate risk of devaluation, which would translate into $70 billion in lost value over the next decade.

There’s also the perennial difficulties developers have been flagging about working in Los Angeles. The city’s new hotel minimum wage — set to hit $30 an hour by 2028 — is putting a damper on the hospitality and tourism boom attached to the coming calendar of global events, and Measure ULA still has owners and multifamily developers thinking twice and worried about profit margins. 

The real catalysts of real estate activity, however, might be a combination of new megaprojects set to break ground soon, the rise of a new class of opportunistic owner-occupiers, as well as a new class of investors seeing upside to downtown’s recently depressed office market. 

In the largest such project, Fourth & Central, the Rauch Family megaproject set to transform 7.6 acres of cold-storage facilities into a $2 billion mini-neighborhood boasting nearly 1,600 rental units and 401,000 square feet of office space, earned unanimous approval from the City Planning Commission in November, with ownership hoping to get greenlighted by the City Council after scheduled hearings in May and June. Set to include significant public open space, Fourth & Central is being billed as not just a downtown destination, but something that becomes a landmark and attracts people throughout the day.

“The Rauch family believe downtown is in the process of rebounding, and are willing to back up this belief with their money, with full anticipation that it will be built,” said Khalatian, who also functions as land use counsel for the project. “This is the type of development that downtown has been craving, and we are excited at the opportunity to deliver it.”

Breaking ground when the market has hit bottom may seem risky, but it may actually be timed to ride a wave of momentum, as buyers see long-term upside in the market’s low acquisition costs. 

The recent owner-occupier wave exemplifies that sentiment. Capital Group recently paid $210 million for Bank of America Plaza, where it plans to create a vertical campus for its 2,100 employees; and Los Angeles County bought the Gas Company Tower for $200 million in a foreclosure sale in 2024. The City of Los Angeles also plans to purchase 865 South Figueroa Street for $92.5 million — a tower with an assessed value of $248 million — once it gets official approval in May.

“I think the pricing has hit a point where it makes sense to buy your building and to operate and consolidate downtown,” said Lall. “That’s a momentum shift that is happening literally as we speak.”

Additionally, a crop of new owners, especially family offices, has also brought new capital into the central business district, in many cases picking up properties after the momentous Brookfield defaults since the pandemic hit. Uncommon Developers picked up Figueroa at Wilshire, a 52-story tower downtown, for $210 million last June, a 40 percent discount from its last sale 20 years ago.  Ryan Hekmat, Uncommon’s co-founder and co-managing partner, told Commercial Observer last year that he had exceptional optimism around downtown’s rebirth; it helps that he moved fast enough to lock in a low value that can ideally ride improving conditions downtown and deliver tremendous value over the long run. 

“They’re not looking for any quick flip,” Chung said of the new class of owners. “They’re trying to hold for more than a decade. And in order to do that, they are purchasing buildings at a 50 percent to 60 percent discount. They have the pricing power now to change the game, and it’s a structural shift.” 

They aren’t as experienced with owning and operating office assets, said Lall, but she chooses to see the fresh infusion of investment as a positive sign.

“Capital is flowing right now,” said Chung. “If you’re asking me if I think it’s the bottom of the cycle, I don’t. I think it’s just a completely new picture that we’re seeing in the Downtown L.A. market.”

Fourth & Central also underscores downtown’s unique ability, at least within Los Angeles, to build dense housing without the pushback that plagues developers nearly everywhere in the city. As Lall said, downtown represents about 1 percent of the city’s land and 20 percent of recent growth in residential units over the last decade, and scores of new residential developments — from years of successful adaptive reuse across the Arts District and elsewhere — still achieve 90 percent or higher occupancy. 

There’s also talk of more office-to-residential conversions to further activate the core and swap out empty, antiquated workplaces with housing and, importantly, customers for nearby retail. Multifamily developer Jamison Services announced plans in January to convert the 33-story Health Plan Tower on Seventh Street into nearly 700 residential units, one of the largest such conversions in the city’s history. 

The recently approved update to the city’s successful adaptive reuse rules, the Citywide Adaptive Reuse Ordinance, speeds up approval and construction timelines for structures built in 2011 or earlier, cutting costs and opening a new host of conversion candidates. It’s not a panacea for the region’s housing crisis —– everybody wants a silver bullet, said Pall — but it’s adding to the momentum. RentCafe found ongoing conversions in L.A. will add roughly 4,400 units when finished.

Even with these pockets of progress, the scale of downtown’s vacant or underutilized space can’t be underestimated. Some downtown submarkets have storefront vacancies hovering around 40 percent; with retail as a lagging indicator of activity, it’ll take time to generate enough foot traffic to activate wide swaths of underutilized space. Lall said she sees bright spots, with new hospitality houses for the World Cup, as well as leases for the L.A. Organizing Committee’s downtown offices at 1150 South Olive Street and a 108,000-square-foot lease from On Location, a hospitality provider and ticket seller for the summer games. But activating the streetscape and bringing more people and investments back downtown remains a long-term project that’s just starting to turn a corner.

“I do think the Games are going to be symbolic and bring our city together, with a feeling of pride again,” Lall said. “I think that has been lost. There was such pride in the DTLA community, and I sense it coming back.”