DreamWorks SKG dropped a bomb on the Westside real estate community earlier this month by opting to back out of its proposed $250 million studio campus at Playa Vista.
That withdrawal, in turn, raised questions about the overall viability of the sprawling 1,087-acre Playa Vista project, which calls for thousands of housing units and millions of square feet of commercial space.
In a broader sense, the entertainment-industry slowdown has raised questions about the outlook for the entire Westside, since much of the market’s growth has been caused by Hollywood’s westward migration.
But the slowdown was not apparent based on second-quarter action.
“The significant pre-leasing activity on the Westside indicates that the area will escape the brunt of entertainment-industry downsizing,” said Ken Rosen of the Rosen Consulting Group in Los Angeles.
Entertainment-industry tenants voraciously absorbed Westside space during the second quarter, especially in Santa Monica, Culver City, Westwood and Beverly Hills.
Among the closest-watched entertainment deals is Universal Music Group’s pending lease for the entire 192,000-square-foot Arboretum Gateway project in Santa Monica. That project is supposed to be completed this fall.
Lease deals that closed in the second quarter included Fox Entertainment Group’s 110,000 square feet in Marina del Rey, and specialty filmmaker Imax Corp.’s 65,000 square feet in Santa Monica.
Further bolstering the Westside is an influx of Internet firms. Matthew Miller, a principal at Cresa Partners, says the “dot-com-ers” were the primary drivers of office deals in the second quarter. “While the new-media sector has been actively growing throughout the Digital Coast, it has increased exponentially this year,” he said.
Among the Internet companies signing Westside leases in the April-June quarter were eCompanies, Event 411.com and Hyundai Information Technology. But the biggest Internet tenant currently shopping in the Westside market is online retailer eToys, which is looking to lease 200,000 square feet. The fast-growing company is currently leasing 60,000 square feet at the Santa Monica Business Park.
Internet tenants generally are looking for “creative office space” often converted aerospace industrial space that is characterized by open floor plans and exposed HVAC systems. Of these, one of the most successful has been the Penn Station project at 1630 Stewart St. in Santa Monica.
But the Westside’s appeal has not been limited to entertainment and Internet tenants. “Business begets more business, and the booming American and California economies are the primary drivers of these movements,” Rosen said. “The Westside especially enjoys this success because of its proximity to a housing market for corporate executives who want their offices near their homes.”
The average asking monthly rent crept up during the second quarter, hitting $2.22 a square foot, from $2.19 in the first quarter, according to Cushman & Wakefield Inc.
Those relatively high rents, coupled with a reasonable cost of financing, are prompting an increasing number of tenants to consider buying rather than leasing their facilities.
“It’s definitely a landlord’s market,” said Tim Macker, president of Westmac Commercial Brokerage. “Today’s high end is running up to $4.25 (a month, per square foot), up from last year’s $4. Century City, Westwood and downtown Santa Monica are in particularly short supply.”
The greatest Westside availability, according to Macker, “is primarily located along the Olympic Corridor from Bundy to the edge of Santa Monica.”
Several new projects will come on line in the months ahead, including Water Garden II (600,000 square feet), Kilroy’s Media District Center (378,000 square feet), Arboretum Gateway (192,000 square feet), and the Arboretum Courtyard (132,000 square feet).
Century City, the Westside’s most-institutional submarket, loosened up a bit in the second quarter, with the vacancy rate hitting 8.0 percent, from 7.4 percent in the first three months of the year. Still, Century City remains the third-tightest submarket in Los Angeles County, behind only the Long Beach Freeway Corridor (7.1 percent) and Cerritos (7.8 percent), according to Cushman & Wakefield.
Vacancies are so limited in Century City that tenants looking for alternatives to downtown Los Angeles essentially have only lower, or “obstructed view,” floors to consider.
Space availability should improve as Princess Cruises relocates to Valencia. It is now exiting the final 75,000 square feet of the 130,000 square feet it once occupied in Century City.
Also in Century City during the second quarter, Divco West closed escrow on 1900 and 1901 Avenue of the Stars, purchasing the buildings from Shuwa Investment Corp. Divco has already launched an aggressive leasing campaign and plans to follow that with a $5 million-$6 million renovation in the months ahead.
And Douglas Emmett Realty Advisors is in escrow to buy the building at 1801 Century Park East. Douglas Emmett officials were unavailable for comment last week, but that firm’s typical strategy has been to renovate buildings it acquires and then boost lease rates.
In terms of new construction, no project looms larger in Century City than Constellation Place, JMB Realty Corp.’s proposed 38-story office tower across from the Century City Shopping Center, which is also owned by JMB.
JMB officials did not return calls last week, but Jim Lynch, president and chief executive of the Century City Chamber of Commerce, said a lawsuit filed by a local homeowner group has been settled. No groundbreaking date has yet been announced.
Another major Westside project slated to materialize before Constellation Place is The Grove at Farmers Market. That $100 million project is being undertaken by Caruso Affiliated Holdings on a site adjacent to the landmark Farmers Market in Los Angeles, just south of West Hollywood.
Major Events
? DreamWorks SKG pulled out of planned $250 million studio project at Playa Vista.
? Fox Entertainment Group leased 110,000 square feet of space in Marina del Rey.
? Specialty filmmaker Imax Corp. leased 65,000 square feet in Santa Monica.
? Online retailer eToys leased 200,000 square feet at 3100 Ocean Park Ave. in Santa Monica, relocating from its pre-existing location at 2850 Ocean Park.
? Divco West closed escrow on 1900 and 1901 Avenue of the Stars, purchasing the Century City buildings from Shuwa Investment Corp.
? Independent investor Larry Taylor and PaineWebber agreed to buy the office building at 10000 Santa Monica Blvd. in Century City.
? Douglas Emmett Realty Advisors entered escrow to buy the building at 1801 Century Park East in Century City.
