Transfer tax and low interest rates contributing to decline in L.A. office sales
By Dolores Quintana
In the city of Los Angeles, on the eve of Measure ULA taking effect, office sales have dropped significantly in the first quarter of this year as reported by The Real Deal.com. The totals are $154 million versus the $659 million from the same period last year. These figures come from Yard Matrix, a firm that examines the data related to commercial real estate sales and research. The firm analyzed and tracks data for offices over 25,000 square feet.
In addition to the drop in sales, the valuation of commercial real estate has also decreased from $420 per square foot in 2022 to $254 per square foot in 2023 about a 39 percent drop in value.
The temptation would be to blame this drop on Measure ULA, but more than one city in the United States faces similar issues with valuation and commercial sales because of the increased difficulty of raising acquisition capital. In national totals, the amount of office sales has also plunged from last year’s total of $4.6 billion to this year’s receipts of $12 billion according to figures from Yard Matrix.
The city government has admitted that it is likely that the first year of revenue under Measure ULA is likely to be less than hoped, but still, projections for the revenue is $672 million starting in July and ending on June 30, 2024 but has also factored in the national drop in sales into the equation. The original estimate of Measure ULA revenues was $900 million. Vacancy rates remain high in Los Angeles since the last quarter of 2023 when 27% of offices in Los Angeles were vacant according to CBRE, but these figures have remained high since the beginning of the pandemic.
Measure ULA is a tax created to help the city fund affordable housing projects and provide resources to tenants at risk of homelessness and levies a tax of 4% for properties conveyed over $5,000,000, but under $10,000,000, and 5.5% for properties conveyed at $10,000,000 or more.