The COVID-19 pandemic is still impacting business in Downtown Long Beach, which saw its office vacancy rate hit a 20-year high in the second quarter of this year, according to a report released Monday.

Even as office rental rates remain lower than other nearby cities, Downtown Long Beach saw a vacancy rate of 22.4% last quarter, the Downtown Long Beach Alliance found in a report on the commercial office market.

DLBA Research and Public Policy Analyst Morris Mills said the overall shift toward virtual work outside the office played a major role in the growing vacancy rate. In particular, he said, small businesses have slowly started moving out of their spaces.

“[For] an office of about eight or 10 people, it might not be in their budget or there is no reason for them to keep paying rent,” he said. “So they are corroding away like that.”

A series of vacancies in some of Downtown’s biggest Class A buildings—Landmark Square, One World Trade Center and Shoreline Square Tower—were major contributors to the trend, which has been ongoing since the beginning of 2020. 

Those three buildings account for over a third of Downtown’s office space, and the total occupancy rate in the three properties dropped from an average of 74% in the second quarter of 2021 to 66% last quarter. The number is low, Mills said, but the drop was not unexpected, as the DLBA predicts even more businesses will downsize their office footprints.

Even with an increase in vacancies, the average asking rent per square foot in Downtown Long Beach has increased by 3.6% to $2.56, with the primary culprit being inflation, according to Mills. The cost of operations for office buildings—which includes everything from maintenance workers to air conditioning—has grown, making rents increase even as demand falters.

The rate in Downtown Long Beach, though, is still lower on average than San Pedro, Torrance, Irvine and Downtown Los Angeles, but it’s currently the highest it has been in Long Beach since 2018, according to analytic service Placer.Ai.

Another note in the DLBA’s quarterly report is the lack of overall office utilization. Unlike the occupancy rate, which measures how much space is being leased, the office utilization rate measures how much space companies are actually using in their day-to-day operations.

“A lot of offices may be on paper being occupied or not, but people might not necessarily be going in,” Mills said. “That’s the big difference.”

Individual data for the city of Long Beach was unavailable, but according to the DLBA report, office utilization in the greater Los Angeles area—which includes cities like Long Beach, El Segundo and Torrance, along with Los Angeles itself, among others—has climbed to 42% as of June, up from a low of 19% in January 2021. But that number is still far below the pre-pandemic mark of 98% utilization.

Despite this continued rise in vacancies, though, the occupancy rate in Class C buildings—which are generally older properties—actually increased from 83% in the second quarter of last year to 89% this year. While there’s no one single reason for the differing trends in Class A and Class C properties, Mills noted that the lower overall price of the older units could explain why Class C buildings are more attractive at the moment.

Even as Downtown Long Beach sees climbing office vacancy rates, Mills said the DLBA has positioned itself to help the area emerge from the pandemic and succeed moving forward.

“The pandemic has really changed our role,” Mills said.  “We are excited for what’s to come.”

Christian May-Suzuki is a reporter at the Long Beach Business Journal.