By BENJAMIN MARK COLE
Downtown Los Angeles remains at a crossroads, awaiting new developments that some say will revitalize the area while fighting a rear-guard action against corporate downsizing and defections to the Westside.
On the drawing boards or under construction are the Disney Concert Hall, the new Staples Center and sound stages on the old Unocal headquarters site, across the Harbor (110) Freeway.
Combined with downtown's many existing assets the court system, City Hall, the county Hall of Administration, the Central Library, nearby Dodger Stadium, several museums, the confluence of freeways and mass transportation systems many are encouraged about the prospects for the central business district.
"No other part of town has the transportation infrastructure in place that downtown has," said Dan Rosenfeld, senior vice president at LaSalle Partners Development Inc. "And given the realities of neighborhood opposition to freeways, I think it is safe to say no other area in Los Angeles ever will."
But while downtown may seem like an ideal market on paper, business tenants are not convinced. Banks, law firms, investment brokers and other businesses that used to make up the downtown elite keep fleeing to places like Century City even as hundreds of millions are being spent on downtown redevelopment.
Net absorption in the third quarter was a negative 41,000 square feet, according to Cushman & Wakefield Inc. In another words, more tenants moved out during the quarter than moved in.
Downtown's office vacancy rate increased to 17.7 percent during the quarter, up from 17.5 percent in the second quarter, according to Cushman & Wakefield. With empty sublease space added to the mix, the vacancy rate is closer to 21.8 percent.
In what would have been a shock in the 1980s, but which now provokes a shrug, the partnership that owns one of downtown's premier towers, the Southern California Gas Co. skyscraper, went into bankruptcy.
Then there's the pending sale of the Arco Plaza for a price significantly below the $620 million that Shuwa Corp. paid for the black towers in 1986 along with plans by home-loan shop Aames Financial Corp. to sublease 185,000 square feet of space in its soon-to-be-former downtown headquarters at Two California Plaza.
In all, many real estate observers find it hard to foresee a day when rents downtown will be strong. "Of the 100 biggest corporations in Los Angeles (County), only six are headquartered in downtown Los Angeles," said David Zoraster, veteran real estate appraiser for CB Richard Ellis. "You have more such companies headquartered in Warner Center or El Segundo than downtown. Downtown is slowly sinking as a corporate or financial center."
But not all the news downtown was bad during the third quarter.
The 480,000-square-foot 612 S. Flower building, now empty, is undergoing a $20 million renovation that the backer contends will convert it into class-A space.
Zoraster noted that downtown's "other downtowns" the less talked-about jewelry, garment and produce districts are actually doing quite well. Indeed, the third-quarter industrial vacancy rate for good-quality warehouse and manufacturing buildings near downtown was a mere 3.3 percent, according to Grubb & Ellis Co.
And as rents on the Westside continue to skyrocket, brokers say tenants are giving downtown more consideration.
"What we've seen in outlying office submarkets is more of an interest in downtown due to its relative affordability," said Bill Boyd, senior vice president at Grubb & Ellis. "I would expect office vacancy rates (downtown) to continue to decline."
Some companies are using the low rents to their advantage. Merrill Lynch Realty took 38,000 square feet in the Citicorp Plaza building, and accounting giant Ernst & Young LLP is filling 135,000 square feet, according to Grubb & Ellis.
The L.A. County Bar Association leased 42,000 square feet in the Figueroa Courtyard, and Paine Webber sublet 35,000 square feet at the Wells Fargo Center.
Some brokers maintain that downtown has assets it hasn't even used yet such as the Los Angeles River. In San Antonio, Dallas and Cleveland, riverfronts have been reclaimed and turned into snazzy shopping and nightlife districts, said Rosenfeld of LaSalle Partners.
"With the use of locks, and some landscaping, the river could be made into an amenity that no other part of the city has," Rosenfeld said. "Century City doesn't have a river, Glendale doesn't have a river."
? Construction continues on the $350 million Staples Center.
? The Los Angeles Center Studios, a project led by Smith, Hricik & Munselle, started construction at the old Unocal Corp. headquarters site.
? Aames Financial Corp. disclosed plans to vacate its 185,000-square-foot headquarters in Two California Plaza.
? Ernst & Young LLP leased 135,000 square feet in the Citicorp Plaza building, which also saw a 38,000-square-foot lease from Merrill Lynch Realty.
? The L.A. County Bar Association leased 42,000 square feet in the Figueroa Courtyard
? Paine Webber sublet 35,000 square feet at the Wells Fargo Center.
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