One of downtown Los Angeles’ familiar tenants is raising the stakes as the office leasing market continues to contract due to pandemic-fueled declines in occupancy.
Financial services firm Wedbush Securities has begun moving from a major office tower in Pasadena, where it will occupy much smaller offices intended to accommodate employees who now work remotely most of the time.
The company leaves behind the Wedbush Center, which overlooks the Harbor Freeway and sports two signs atop it bearing the company’s name. Wedbush has been headquartered in the Wilshire Boulevard building since 2001 and its lease expires next year.
“It’s a big deal, a very big decision for the company,” President Gary Wedbush said of the move. “The pandemic and COVID have created a different type of office for us. »
With most employees only expected to be in the office a third of the time, Wedbush is creating an office oriented toward shared workspaces that can be used as needed by different employees instead of assigned desks, he said.
This decision was also influenced by the the nature of the downtown financial district has changed since then COVID-related closure. Thousands of office workers have left, and they are unlikely to return in numbers like before the pandemic. Many stores and restaurants remain closed, and office tenants said the streets feel less safe than before.
Although Wedbush said “downtown has been fantastic for us,” other locations have become more attractive. “There are places like Pasadena that seem to have recovered from the pandemic better than downtown Los Angeles. It was part of the decision to move.
The company leases more than 100,000 square feet at the Wedbush Center, but will occupy about 20,000 square feet in an office complex on Lake Avenue, in one of Pasadena’s prime commercial districts.
“The amenities on Lake Avenue are fantastic,” Wedbush said. “From casual restaurants to very fine dining, fitness centers – there was simply everything.”
Wedbush’s move, which will officially take place in the first half of 2025, reflects a trend that has affected downtown and much of Los Angeles County for several years, real estate brokerage CBRE said in a recent report on office rental.
“The Greater Los Angeles office market continued its search for the bottom” in the third quarter, CBRE said, as tenants and landlords “navigate the current supply and demand imbalance exacerbated by the shift to hybrid and remote work.
Companies adapting to new work models are abandoning large areas of office space, and the change is particularly visible in the city center, where CBRE said the overall vacancy rate was above 30%, triple that. of the amount considered to be a healthy balance between the interests of tenants and owners.
Wedbush Securities’ move to hybrid work, with people in the office some days and not others, has created the opportunity to create a different type of office with a smaller footprint and more shared spaces to collaborate or work far away of a traditional office, Wedbush said.
Approximately 70% of the office will be considered “hotel” space where employees will be able to choose a workstation on the days they are present, while the remaining 30% will be offices for financial advisors and others requiring privacy to meet customers.
One striking difference will be that shared workstations will be located around windows with city views and offices will be located in the center of the building. In the old layout, individual desks were much larger and took up the main space along the windows, Wedbush said.
One of the two floors leased by Wedbush Securities in Pasadena has a rooftop terrace that Wedbush plans to turn into an outdoor office space with conference tables, workstations where people can plug in their computers and places to lounge. relax.
“It’s not just going to be a few tables and umbrellas,” he said. “The opportunity to build this new space was a driving factor in our decision to leave our building that we have loved for so many years. »
Wedbush Securities was co-founded in 1955 by Wedbush’s father, Edward, in Los Angeles and now has nearly 900 employees in 28 cities across the country, Wedbush said. “We’re really proud of our heritage in Los Angeles.”
Wedbush’s decision to significantly downsize its headquarters underscores not only the continued difficulties in the office leasing market in the wake of the pandemic, but also broader vulnerabilities in commercial real estate throughout Los Angeles County.
A report released by real estate services company NAI Capital said that in the third quarter of 2024, the Los Angeles County commercial real estate market saw a sharp decline of 18.4% in sales volume since the beginning of the year and an increase in real estate capitalization rates, a metric used to estimate an investor’s rate of return based on the income the property is expected to generate.
This may be a low point in the real estate cycle for property sales, said Chris Jackson, managing director at NAI Capital.
“With rising cap rates, California regulations and high interest rates throughout 2024, the commercial real estate market has dipped slightly,” with office buildings being “particularly impacted,” Jackson said . “However, as interest rates are expected to fall more substantially in 2025, we expect a significant rebound in property sales.”
Sales are still limited by government taxes and fees, particularly Measure ULA, the Los Angeles property transfer tax that took effect in 2023, the report said. Dubbed the “mansion tax,” the ULA measure imposed a 4 percent tax on real estate transactions over $5 million and a 5.5 percent tax on those over $10 million. In June, these thresholds increased to $5.15 million and $10.3 million.
The tax contributed to a nearly 40% year-over-year decline in sales of office, retail, industrial and multifamily properties, or $1.9 billion less than the total. last year, according to the report.
