The Westside started 2005 much as it ended 2004, with declining vacancy levels and steady asking rates that are luring investors into the lucrative market.
Pension funds, institutional REITs, private individuals and foreign money jockeyed to pick up buildings in the best-performing areas, such as Beverly Hills and West Los Angeles.
Vacancy rates throughout the Westside dropped to 14 percent in the first quarter, from 14.8 percent at the end of last year. Meanwhile, average asking rates for Class-A office space were the highest in the county, hitting $2.78 per square foot, according to Grubb & Ellis Co.
“With the scarcity of new developments and the increasing cost of land and materials, the global appetite for these properties is so voracious there’s not enough product to feed it.” said Bob Safai, a principal at Madison Partners.
Nowhere was that more evident than in Beverly Hills where five investment deals closed in the first quarter. In the largest, Irvine-based Starpointe Ventures LLP picked up a 103,000-square-foot office building on Roxbury Drive from Pair City Development Inc. for $43 million. The building is 90 percent occupied.
There were few lease deals in the city, with the biggest involving the Sundance Institute, which took 10,606 square feet on Wilshire Boulevard in a 44-month deal. Terms were not disclosed.
“The (Golden) Triangle is very tight and is approaching single-digit vacancy fast,” said Rosey Miller, senior director for Cushman & Wakefield. “There aren’t many large blocks of space, so there were no significant transactions.”
The West Los Angeles market started the year strong with the Westside’s lowest vacancy rate in the first quarter, at 11.2 percent, and respectable asking rates of $2.43 per square foot for Class-A properties. Vacancies have been declining steadily since the end of 2003, when they peaked at 16.9 percent.
“More landlords were bullish in the fourth quarter and they’re holding firm in the new year,” said Nick Christensen of CB Richard Ellis Co. Still, rents in West LA are affordable by comparison, making the area more attractive to tenants seeking a Westside address and to investors looking for assets in a low-vacancy market.
In an investment deal, Broadreach Capital Partners LLC secured its fourth Southern California property, Tribecca Plaza, in a $30.5 million acquisition from Alliance Commercial Partners. The 151,000-square-foot office campus on Olympic Boulevard was 48 percent leased to entertainment companies at the time of sale. Broadreach plans a $4 million renovation to attract new tenants and command higher rates.
Santa Monica recorded one of the biggest transactions in recent years with the Yahoo! Inc. lease at the Colorado Center. The 230,000-square-foot deal is for 10 years at $100 million and raises occupancy at the 1.1-million-square-foot property to 97 percent.
The deal improved vacancy rates in the city to 11.9 percent from 12.5 at the end of last year and 17.3 percent a year ago. Class-A asking rates rose 5 cents for the quarter to $3.19 per square foot.
Meanwhile, the Marina del Rey/Culver City market surprised many brokers, absorbing 80,100 square feet of space after putting about 100,000 square feet back on the market in the fourth quarter.
Diagnostic and Interventional Spine Care played a big role in that, leasing 42,771-square-feet at Marina Business Center I for in a $15 million deal.
Asking rents are among the lowest on the Westside, at $2.26 per square foot, and as a result, vacancy rates have dropped to 14.4 percent in the first quarter from 15.8 percent at the end of last year.
Brentwood, a top performer only a few quarters ago, started the year badly, posting the only negative absorption figure (30,850 square feet) on the Westside. Since no large tenants left the area, analysts attribute the shift to scattered departures of smaller tenants that aren’t tracked by real estate firms.
“I don’t feel this will be a trend for this submarket,” said Aron Leckband, a Grubb & Ellis research analyst. “It has been and is still one of the tightest markets in West Los Angeles.”
The vacancy rate rose to 13.1 percent from 12.4 percent, but average asking rates for Class-A space rose a nickel to $2.55 per square foot. In a significant lease, Wells Fargo & Co. took 20,000 square feet on Wilshire Boulevard in a seven-year deal at undisclosed terms.
In Century City, average asking rates continue to slide, clocking in at $3.02 per square foot in the first quarter, down a nickel from the end of the year. The vacancy rate dipped to 16.3 percent from 17.2 percent at year-end.
With large blocks of space slated to come online later in the year, it’s unlikely that these numbers will improve.
“Century City is still a vibrant, accessible and prestigious address, but all the construction and the delay of the Santa Monica Blvd. renovation are keeping some tenants away,” Christensen said.
Most deals involved tenants switching properties or renewing and/or expanding within their current buildings.
Lehman Bros. Holdings Inc. had the largest deal in the quarter, taking 43,000 square feet at MGM Plaza to consolidate its Westside offices, most of which already were in Century City. Terms were not disclosed.
BentleyForbes also moved within the market, leaving 2049 Century Park East and expanding to 14,000 square feet at the MGM Tower in a 10-year, $6-million deal.
