Downtown Los Angeles is expected to soon be hit with another loss to its shrinking base of corporate tenants as Deloitte plans to ditch space in its namesake tower.
The consulting giant will close up its more than 84,000-square-foot office in the high-profile Gas Company Tower building at 555 West Fifth St., according to people familiar with the deal.
Deloitte is expected to fully exit the building by Fall 2026, a move that adds another layer to the neighborhood's struggle in moving beyond a bevy of pandemic-related complications.
Deloitte's role as "a longstanding leader in the Los Angeles business community ... will continue across our geographically dispersed market," executives told employees in a memo viewed by CoStar News.
Deloitte signed the two-floor deal for space in the Gas Company Tower building in 2014 as part of an agreement that was originally set to expire in early 2031.
The company recently completed a renovation of its office in Glendale, California, where it leases about 18,500 square feet in the building at 555 North Brand Blvd. It also earlier this year relocated its hub in Manhattan Beach to nearby El Segundo after signing an 81,300-square-foot deal to take over a majority of the property at 2201 Rosecrans Ave.
The downtown office is Deloitte's largest in Los Angeles.
It is not yet clear if Deloitte is hunting for space to house its downtown Los Angeles workforce, and if so, where that decision could land. Company representatives did not immediately respond to CoStar News' requests for comment.
Making moves
Deloitte is the latest firm to leave downtown Los Angeles, as tenants relocate to better-performing office hubs elsewhere in the city. Skyline fixtures such as the Gas Company Tower, the U.S. Bank Tower, EY Plaza and Wells Fargo Plaza have experienced plummeting vacancy rates as a result of the ongoing exodus, underscoring the area's uphill battle to recover its pandemic-era losses.
Those struggles are being felt by landlords such as Brookfield DTLA, the owner of Deloitte's namesake tower.
The Brookfield Asset Management subsidiary has faced several foreclosure warnings among multiple properties across its Los Angeles portfolio. In 2023 the roughly 1.5 million-square-foot Gas Company Tower and the 910,000-square-foot EY Plaza tower both fell into receivership, and the landlord has previously warned its investors that lenders could choose to foreclose on the 1.4 million-square-foot Wells Fargo Center North Tower.
Earlier this year Oaktree Capital Management signed a deal to relocate its longstanding headquarters in the Wells Fargo Center at 333 Grand Ave. to about 220,000 square feet of space in the City National Plaza complex, marking one of the largest new deals to be signed in the Los Angeles office market over the past half-decade, according to CoStar data. The move underscored the priority tenants have increasingly placed on the financial stability for both the building where they lease space and the landlords from whom they lease from.
Distressed debt or cash flow issues hamper the ability to invest in property upgrades, finish-out work or add amenities, all of which help property owners compete in cities that are still contending with depressed demand and leasing activity.
Many of the challenges are especially acute in Los Angeles, where the office market is at its weakest position in decades, according to CoStar analysis.
Vacancy rates have hit historic highs, climbing to about 16% from the 10% reported in early 2020. Downtown Los Angeles is faring even worse as tenants continue to downsize or vacate their downtown spaces, collectively handing back about 2 million more square feet than they leased in the past year, according to CoStar data.
Not all is lost for the city's central core, however. The Oaktree deal has been among a few signed over the past couple of years in which tenants have remained in the downtown area, and accounting giant KPMG recently inked a nearly 70,000-square-foot deal for new space at the U.S. Bank Tower.
And for Deloitte, the company has only emboldened its commitment to physical real estate. It signed one of Manhattan's largest leases of the year with a deal to take over nearly three-quarters of Related Cos.'s 1.1 million-square-foot tower known as 70 Hudson Yards. The 800,000-square-foot agreement was finalized before the New York developer broke ground on the office tower this past summer.