Sublease Bargains Available As Westside Continues Slide
By JOHN BRINSLEY
While still one of the most desirable places to work in Los Angeles, the Westside office market continues to slide downward and is likely to continue that way for a while.
General economic malaise, exacerbated by Sept. 11, has left business owners cautious about relocating or expanding operations. The good news, depending on one's perspective, is there is a lot of sublease space available, and at bargain prices.
The Westside office vacancy rate in the fourth quarter was 13.6 percent, up from 11.6 percent in the third quarter and well above the 8 percent in the fourth period of 2000, according to Grubb & Ellis Co. At the same time, the average asking rent fell to $3.07 a square foot, down from $3.11 in the third quarter and $3.14 in the fourth quarter a year ago.
For those seeking to sublease, prices are much lower.
"The sublease market in any given segment in West L.A. may be 15 to 25 percent less (expensive) than the direct market," said Neil Resnick, a Grubb & Ellis senior vice-president. "My gut feeling is that (rates) are going to fall even further."
The sublease glut, seen especially in Santa Monica and to a lesser extent Culver City, reflects the after-effects of the dot-com implosion.
Landlords are doing what they can to fill space. The Arboretum Courtyard building, at 2120 Colorado Blvd., once housed dot-com incubator eCompanies and online sports network Broadband Sports. ECompanies has drastically scaled back its offices and Broadband Sports folded last spring, leaving 75,000 square feet available out of its original 81,000. Across the way at 2150 Colorado Blvd., 50,000 square feet is up for grabs, having been vacated by IBM's e-business division.
Brokers said properties like this are available at good prices. "Originally, (landlords) were asking $3.50 a square foot when the market was hot, $3.75 when it was hotter," said Steve Solomon, senior vice-president at Colliers Seeley International.
Now, he said, sublease space is on the market for as little as $1.90.
"Corporations have waited long enough with these (leases) on the books. Now they're saying, 'get them off, whatever it takes,'" he said.
Santa Monica looks to be among the hardest hit areas. Its vacancy rate jumped to 20.1 percent from 16.3 percent in the previous quarter and 8 percent in the fourth quarter of 2000. Asking rents fell to $3.72 a square foot from $3.87 in the previous quarter and $3.81 a year ago.
Plus, the pattern of Century City businesses moving to Santa Monica has been halted, market watchers said. Indeed, Century City seems to be holding its own. Rents rose to $3.47 a square foot from $3.30 in the third quarter of 2001 and from $3.22 in the fourth quarter of 2000, even though the vacancy rate rose to 7.6 percent from 5.6 percent in the third quarter and 3.9 percent in the fourth quarter of 2000.
The biggest Westside deal of last quarter was in Century City, where law firm Jeffer Mangels, Butler & Marmaro announced plans to relocate to 1900 Avenue of the Stars from nearby Fox Plaza tower taking between 80,000 and 90,000 square feet in a 10-year deal reportedly worth $35 million.
More than 800,000 square feet came back on the market than was taken off in the fourth quarter in the Westside. Every sector of the submarket gave back space but Miracle/Park Mile, which managed a paltry 18,000 square foot net absorption. Santa Monica saw more than 288,000 square feet return vacant to the market, while Culver City put nearly 220,000 back in play.
Culver City, which saw lots of warehouse space converted into office space for now-defunct tech companies, has seen its vacancy rate climb to 14.2 percent in the fourth quarter from 9.9 percent in the third, even as rents rose to $2.94 a square foot from $2.88. Brokers said space that was in great demand 18 months ago is now sitting fallow.
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