In the heart of Santa Ana, a newly renovated office complex has a date with the wrecking ball.
There’s nothing wrong with the complex, which features two glass-sided office buildings, renovated underground parking, remodeled lobbies and a new event lawn, conference center and fitness facility.
Since the pandemic, however, the owner, Kearny Real Estate Co., has been able to fill only about half the space at the “Elevate@Harbor” complex on Harbor Boulevard. So, Kearny decided to tear the buildings down, fill in the underground garage with dirt and erect a new warehouse on the 8-acre site.
“It just came to a point where (this property) made more sense as industrial than an office complex,” said Dan Broder, Kearny’s assistant vice president.
Three years after the COVID-19 pandemic began, remote work continues to wreak havoc on the office market, pushing vacancy rates to their highest level in years and causing building values to plummet.
“RTO” (or return to office) is flagging, with just half of Los Angeles’ office workers showing up at their desks, by one measure.
Hence, building owners are searching for solutions to cascading cash flows and rising operating costs.
Some are selling for a loss. Others — like LA-based Kearny Real Estate — are converting office buildings into warehouses, apartments, medical buildings, data centers and hotels.
One report shows Los Angeles County developers produced 798 housing units in former office buildings last year, more than any other city in the nation.
SEE MORE: Remote work predicted to slash office values by $800 billion
“Tenants have made changes to how they’re occupying space, and therefore, they are right-sizing or are generally downsizing how much space they use,” said Kevin Bender, JLL’s executive managing director in Los Angeles. “That, coupled with tenants that are deciding to vacate altogether, … (is) driving the increase in vacancy across most product types.”
For many,…
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