Economic Overview
Los Angeles (LA) County employment edged higher between August 2025 and August 2026, with total nonfarm employment increasing by 33,900 jobs, or 0.7% year-over-year (YOY). Job gains were concentrated in private education and health services, which added 32,600 jobs (+3.3% YOY), and leisure and hospitality, which expanded by 11,700 jobs (+2.2% YOY) - sectors that typically provide limited support for traditional office leasing. By contrast, several office-relevant industries contracted YOY, including information (-11,100 jobs), driven largely by motion picture and sound recording (-8,200 jobs), professional and business services (-5,700 jobs) and financial activities (-4,400 jobs), signaling continued caution among many core office users. Legal services (+800 jobs), however, was a notable exception.
The labor market was stronger month-over-month, with total nonfarm employment increasing by 38,000 jobs from July to August 2026. However, most of the gain reflected seasonal hiring in local government education as schools reopened. The monthly unemployment rate was 4.9% in August 2026, down from 6.2% in August 2025 and below the Q3 2026 average of 5.2%.¹ Overall, LA's employment base remains uneven, with much of the growth concentrated outside the industries that most directly support office demand and net absorption. Continued contraction in key office-using sectors may limit near-term expansion demand, reinforcing a leasing environment driven more by renewals, relocations and flight-to-quality than broad-based employment growth.
Supply And Demand
The LA office market remained challenged in Q3 2026, as rising vacancy and renewed occupancy losses weighed on fundamentals. Overall vacancy rose to 23.2%, up 20 basis points (bps) quarter-over-quarter (QOQ) and 80 bps YOY. Net absorption totaled negative 432,758 square feet (sf), a reversal from positive 326,014 sf in Q3 2025, bringing year-to-date (YTD) net absorption to negative 877,196 sf. Sublease availability declined 6.7% QOQ to 5.2 million square feet (msf), its lowest level since Q3 2020. It has now fallen 37.1% from its peak of 8.3 msf in Q3 2024, signaling a continued reduction in shadow supply. While the decline should gradually reduce competition with direct space, direct vacancy continued to rise, reaching 21.3% in Q3 2026.
Leasing activity totaled 2.2 msf, down 14.9% QOQ on a pullback in direct leasing and 11.5% YOY on a sharp slowdown in sublease transactions. Direct leasing remained relatively resilient YOY at 2.0 msf (+1.6%), while renewal activity rebounded to nearly 1.3 msf, nearly double the prior quarter (+95.2%). Century City led all submarkets with 295,976 sf of leasing, highlighted by PwC’s new 138,217-sf lease at 2121 Avenue of the Stars, relocating from Downtown LA. In El Segundo, Innocean USA signed a new 101,000-sf lease at 888 Douglas Street, expanding into space previously occupied by Beyond Meat. Raytheon Company also recommitted to 144,709 sf at 2222 Imperial Highway, one of the quarter’s largest renewals. These transactions highlight continued demand for well-located, higher-quality office space even as overall occupancy remains under pressure.
By industry, financial activities led leasing activity in Q3 2026, accounting for 556,745 sf across direct leases, subleases and renewals, or 27.4% of leased space with an identified industry. Legal services followed with 309,031 sf, while professional and business services and manufacturing accounted for 306,835 sf and 191,377 sf, respectively.
Investment sales remained concentrated around the repricing of office assets, particularly in Downtown LA. L.A. Care Health Plan acquired 1200 West 7th Street from Shinhan Bank for $125.0 million (M), or $174 per square foot (psf), while Sky Castle LP purchased 350 South Figueroa Street from Jamison Properties for $53.2M, or $152 psf. Outside Downtown, Fortress Investment Group acquired 9050 Washington Boulevard in Culver City for $71.3M, or $391 psf, illustrating the significant pricing disparity between Downtown and stronger Westside locations.
Future Inventory
No new office buildings were delivered in Q3 2026, leaving total completions at 573,000 sf YTD. Development remains concentrated in LA West, which accounts for 72% of the remaining construction pipeline. Major projects include the Apple LA Campus (536,000 sf) in Culver City and Century City Center (825,000 sf), whose tenants include Creative Artists Agency, Clearlake Capital Group and Sidley Austin LLP. The concentration of new construction in higher-quality and well-located projects reinforces the market’s ongoing flight-to-quality trend while limiting broader competitive supply.
Pricing
Overall average asking rent increased 0.3% QOQ and 2.8% YOY to $3.70 psf per month on a full-service gross basis. Class A average asking rent was essentially unchanged QOQ but increased 3.0% YOY to $4.01 psf, as landlords of higher-quality space continued to hold asking rates despite elevated vacancy. Class B average asking rent increased 1.0% QOQ and 2.7% YOY to $2.98 psf, leaving Class A with a $1.03 psf, or 34.4%, premium.
