The Hollywood vacancy rate continued to climb in the second quarter, even as asking rents moved upward.
The submarket’s vacancy rate shot up to 14.2 percent from 11 percent in the prior quarter and from 8.8 percent a year earlier. Even with more space available – more than 41,000 square feet were put back into the 2.3 million-square-foot market – second quarter asking rents were almost 12 percent higher than the prior period.
Landlords were asking $3.32 a foot, 35 cents a foot more than the $2.97 average in the first quarter and 40 cents over the $2.92 average the year earlier, according to data from Jones Lang LaSalle Inc.
Nicole Mihalka at Jones Lang LaSalle said the vacancy rate increase is temporary, but rising rents are not. Landlords will soon have the upper hand.
“We’re starting to see a turn from what’s been a tenants’ market to a landlords’ market,” she said. “You’re going to see after this quarter the vacancy decline.”
John Tronson, a principal in Los Angeles at Avison Young Inc., agreed that higher office rents will stick around – and likely continue to rise – as long-anticipated office space in the tight market becomes available.
The 22-story Sunset Media Center at 6255 Sunset Blvd., for example, has begun courting tenants after undergoing renovations since it was acquired by Kilroy Realty Corp. for $76 million in August.
Similarly, L.A. developer Jerry Snyder’s proposed creative office campus at 959 Seward St. has been fully entitled and is expected to break ground soon.
“All these projects will have to lease at higher asking rents than the market is currently asking for any Class A product, because that’s what it’s going to take to justify the cost of improving them or constructing them,” Tronson said.
Dallas developer Lincoln Property Co. and GEM Realty Capital Inc. of Chicago plan to spend about $5 million renovating two Class B office buildings that make up the former Eastman Kodak Co. campus at Santa Monica Boulevard and Las Palmas Avenue. The pair purchased the campus in a joint venture last quarter for $24.7 million.
Mihalka, who represented Lincoln and GEM in the purchase, said vacant spaces like the Kodak campus have pushed the submarket’s vacancy rate up. She doesn’t expect it to stay that way for long, though.
“There’s a lot of leases in the queue, so you’ll see a lot of vacancies go away,” she said.