Join me in the Wayback Machine, Sherman.
It’s looking a lot like 2007 on the Westside, according to Bob Safai, a partner at Madison Partners.
“In 2007, all cylinders were hitting,” he said. “Leasing rates were at all-time highs, vacancy rates were in the single digits and capital was abundant. Then the market crashed and we hit a historic low time in the economy. Seven years later, we’re back to 2007-level pricing in investment sales. If landlords can continue to increase rental rates and vacancy levels go down, these factors – combined with the cap rates staying low – will create the perfect storm for historic pricing.”
First quarter data from Jones Lang LaSalle Inc. supports Safai’s assertion. Beverly Hills’ vacancy rate dipped to 9.5 percent in the opening period, with asking rents averaging $4.62 per square foot.
“There are no new tenants to the market, but rates are increasing significantly, driven by internal growth,” explained JLL Managing Director Mike McRoskey.
Santa Monica closed the quarter at 10.4 percent vacancy, down from 12.4 percent a year ago, with landlords asking $4.48 per square foot a month.
Occupancy is rising largely because tech and entertainment companies continue to seek space in or near Santa Monica and Silicon Beach while existing tenants continue to grow head count – “renewals and expansions based upon business needs rather than lease expirations,” McRoskey noted.
For example, online marketing company Core Digital Media signed a 40,000-square-foot sublease from Fox Interactive Media at the Bluffs at Playa Vista, 12181 W. Bluff Creek Drive. Terms were not made public, but the deal’s value has been widely reported at about $9.5 million.
Overall, Westside average asking rates were $3.99 a foot, up 7 cents from the prior period and 19 cents from a year earlier. The average vacancy rate of 15.1 percent was down from 17.4 percent 12 months prior and a half-point lower than the December quarter.
The Westside is, McRoskey concluded, “swinging from a strong tenant market to more of an equilibrium over the next 12 to 18 months. It’s been a strong market and will continue to get stronger in the foreseeable future.”
Sean Westgate, senior vice president with Cresa, characterized the market as brimming with anticipation.
“While a steady flow of tenants are taking down space and/or renewing leases, it’s the anticipation of the larger tenant requirements in the market and where they land in the coming months that will be intriguing to watch.”
Why? Because there’s no new space planned to accommodate tenant requirements of that size.
The 284,000 square feet under construction in West Los Angeles, the entirety of the Element LA campus at 1901 S. Bundy Drive, is already spoken for. Riot Games Inc. agreed to take the entire site in a year-end deal. In addition, Imax is leasing the entire 66,000-square-foot property under construction at 5865 S. Campus Center at the Hercules Campus at Playa Vista.
“It will be interesting to see how the continued flow of domestic and foreign capital into the Westside market will impact the tenant migration dynamic,” Westgate said. “Will tenants acquiesce and renew at landlords’ increased asking rates or will we see further migration to alternative markets like Miracle Mile, the Lower Westside, even El Segundo? A very similar dynamic occurred back in 2006 and 2007 before the downturn.”
Main Events
Online marketing company Core Digital Media sublet 40,000 square feet from Fox Interactive Media at the Bluffs at Playa Vista, 12181 W. Bluff Creek Drive. Industry sources estimated the deal was worth about $9.5 million.
The Oprah Winfrey Network will relocate to the Lot, 1041 N. Formosa Ave., in a multiyear lease for about 60,500 square feet when its deal at 5700 Wilshire Blvd. expires this year.
Hines Global REIT Inc. bought Blackstone Group’s Howard Hughes Center in West Los Angeles for $516 million. The property includes five Class A buildings and traded for $391 per rentable square foot.
Beverly Hills’ 13,533-square-foot Gucci Building, at 345-347 N. Rodeo Drive, sold for $108 million, or $7,980.49 per square foot. Miami’s Ponte Gadea Group purchased the property from Festival Cos.
A Culver City three-building office park traded for $26.4 million, or $382.64 per square foot. Alcion Ventures sold the Class B R&D buildings, at 10301-10335 Jefferson Blvd., to Lionstone Group.
