DOWNTOWN: Landlords May Be Holding Space to Boost Rents

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Major events in individual commercial and industrial real estate markets across the area in the fourth quarter.

Don’t let the numbers fool you.

While fourth quarter data appear to show that the downtown L.A. submarket rebounded – with positive absorption of more than 199,000 square feet and a vacancy rate that dropped to 14 percent – analysts said those Grubb & Ellis Co. figures likely masked a sobering reality.

Behind the scenes, landlords continue to sign renewals but are struggling to find tenants to take empty space. In fact, some landlords have likely pulled off the market space that was previously available, skewing the numbers to make it appear that the vacancy rate is dropping.

And so-called “phantom vacancies” – or vacant space that’s leased by a tenant but not in use – also is much in evidence downtown. Whitley Collins, regional managing director in downtown Los Angeles for Jones Lang LaSalle, said he knows of at least 15 firms that have cut staff due to the recession but have yet to put any vacant space on the market for sublease.

Tenants might be unwilling to sublease space because they don’t want to go to the trouble of consolidating offices for another tenant. Or they don’t want to tip to competitors how much staff they have actually cut.

Collins estimated it could take years for downtown Los Angeles to absorb all the phantom vacancy space that’s lurking behind the scenes. “We could have two to three years worth of space that’s not even on the market,” he said.

The Class A asking rent meanwhile held relatively steady at $3.21 a square foot, a penny less than the third quarter, though those rates do not necessarily reflect signed deals.

Office Market At a Glance

Inventory: 32.1 million square feet

Under Construction: 0

Class A Asking Rent: $3.21

MAIN EVENTS

  • Law firm One Bunker Hill Law reupped its lease at 601 W. Fifth St. for five years. The lease covers 15,874 square feet and is valued at $1.7 million. The building is operated by Downtown Properties LLC.

  • Current Media Inc., a San Francisco media company co-founded by former Vice President Al Gore, signed a four-year lease for 22,786 square feet at Los Angeles Center Studios. The deal is valued at slightly less than $2 per square foot per month, and will later escalate to about $2.80 per square foot. The 1201 W. Fifth St. studio is a 20-acre facility where shows such as “Mad Men”

are filmed.

  • A 29-unit, partially completed apartment project in Chinatown has been sold for $4.53 million to Super A Logistics Services LLC, an entity of a group of multifamily investors. The property, at 700-704 N. Hill St. and 709-711 N. Yale St., was owned by Gateway Business Bank of Cerritos. The project broke ground four years ago and is 80 percent complete.

  • Non-profit group Peace Over Violence moved into 6,294 square feet at 1015 Wilshire Blvd. The 10-year lease is valued at $1.5 million. Peace Over Violence, previously located at 605 W. Olympic Blvd., will use the new location as its metro headquarters. The organization is a social services agency that deals with sexual assaults, child abuse and youth violence, among other issues.

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