They are sub-letting at bargain prices to try to recoup some of the expense and there are concerns about what will happen when some mega projects are completed next year.
Meanwhile other major projects in the area are being put on hold because developers cannot get the necessary finance.
The price of offices, warehouses, hotels and malls are all going down and they are likely to continue doing so according to Wayne Ratkovich, chairman of the Los Angeles branch of the Urban Land Institute, an industry trade group.
'It's a pretty gloomy forecast no matter where you go. It is hard to find optimism out there,' said Ratkovich, who is also a Los Angeles developer and landlord.
The bottom of the market is still six to 12 months away, according to almost half of the respondents to a recent Urban Land survey. An additional third of the professionals including developers, lenders, brokers and architects were more bearish, guessing that the bottom could be as far away as two years. Only 2%, though, said it could take longer than two years to start turning around.
Finance has dried up as lenders continue to tighten offers and unless buyers are willing to make substantial down payments large scale property trades and developments look impossible.
This has affected a number of projects. The $3 billion Grand Avenue residential, retail and hotel complex in downtown Los Angeles, a $400 million luxury condominium tower on the edge of Century City and the $1 billion Park Fifth residential and hotel complex, another planned downtown Los Angeles mega development, are all on hold awaiting financing.
Projects that were funded years ago, such as the $2.5 billion LA Live entertainment, hotel and residential centre are under construction and expected to be completed. A $600 million hotel, residential and retail development being built at the intersection of Hollywood Boulevard and Vine Street in Hollywood should be open next year. But there is concern about how those projects will fare upon completion.
Already vacancy rates are growing. Struggling white collar companies have moved quickly to lay off employees, creating empty space in their offices. In a further effort to cut costs, many of those businesses are trying to sublet their empty space at rates up to 20% below typical market rents.
Particularly hard hit by the infusion of cheap sublease space have been Orange County, where financial services and real estate companies have vacated thousands of square feet.
In Westside, Los Angeles County's largest market, many businesses have left for cheaper office space elsewhere, even if they had to leave pricey rented space behind and sub-let it in an effort to cut their real estate costs.
