The downtown L.A. submarket may be in flux when it comes to space, but one thing has held relatively firm: rents.
In the second quarter, downtown gave back roughly 168,000 square feet, the third most in the county. Year to date, the market has already coughed up 224,000 square feet as the economy squeezes tenants, especially law and financial firms.
But asking rents have yet to experience a dramatic drop. Last quarter, Class A rents slipped just 3 cents to $3.33, giving downtown the third priciest commercial real estate in Los Angeles County behind West Los Angeles and Hollywood. And brokers said rents are unlikely to slide too much in the near future.
Why? Unlike other parts of the county, downtown wasn’t overbuilt during the boom, so rents haven’t experienced the wild swings seen in regions like the San Fernando Valley and the Westside. In addition, landlords aren’t willing to budge much on asking rents because lowering them would devalue their properties, which is the last thing lenders want to see.
But landlords are making concessions in other ways, either by offering free parking, several month’s worth of free rent or cutting back on tenant improvements. They’re also dialing back on annual rent increases.
Jonathan Larsen, executive managing director at Transwestern Commercial Services, said he’s seen some landlords scale rent increases back to as low as 3 percent. In previous years, landlords were reluctant to dip below 4 percent.
“It was sort of an untouchable, like a sacred number,” he said.
Office Market At a Glance
Inventory: 32.1 million square feet
Under Construction: 0
Class A Asking Rents: $3.33
MAIN EVENTS
– The land and entitlements for the Park Fifth development at 427 W. Fifth St. were put up for sale by the owners, Africa Israel Investments Ltd. and Houk Development Co. The nearly 99,000-square-foot property has entitlements for 790 residences, a 212-room hotel and 19,035 square feet of retail space. After several false starts, the $1.3 billion project never broke ground.
– The $3 billion, 3.6 million-square-foot Grand Avenue project remains on hold as developer Related Cos. searches for funding. Related had until Feb. 15 to start construction, and will now pay a $250,000-a-month fee for every month construction does not start. Related will make that payment in a lump sum when it starts construction. Beginning Feb. 15, Related also started paying a fee of $25,000 a quarter.
– Taiwan Business Bank of Taipei renewed its 9,460-square-foot lease at U.S. Bank Tower, owned by Maguire Properties. The 10-year deal is valued at $3.3 million. The bank’s branch, 633 W. Fifth St., is its only one in the United States.
– People’s Liberation Inc., a clothing company that designs Justin Timberlake’s clothing brand, signed a three-year deal for 13,000 square feet of headquarters space at 1212 S. Flower St. for about $1 million.
– Health care company Sullivan Group signed a five-year renewal for 24,035 square feet at 800 W. Sixth St. The deal is valued at approximately $3.3 million.
