Hollywood's transition from sketchy to edgy persisted in the first quarter, as vacancy rates continued to dip, particularly among the area's top buildings.
Grubb & Ellis Co. research shows that the Hollywood/West Hollywood office vacancy rate dropped all the way from 18.9 percent at the end of 1999 to 8.1 percent by the end of the first quarter, with the average monthly class-A asking rent moving from $2.26 to $2.35 per square foot, respectively.
"Redevelopment has put Hollywood on the map," said Paul Stockwell of Julien J. Studley Inc. "Tenants are looking for specific product types instead of specific locations. We're seeing more interest in creative, funky, concrete warehouse buildings and there are more of those in Hollywood than in Beverly Hills or Santa Monica."
With a dearth of new construction, conversion projects in such buildings are contributing to the area's revitalization.
Who's doing the renting? Primarily entertainment, marketing and Internet companies. "For a new company, Hollywood is central, convenient to studios more people are putting it on their list of desirable areas," Stockwell said.
For instance, IFilm relocated to Hollywood from San Francisco, taking 30,000 square feet at 1024 N. Orange Drive in a 10-year lease. Commercial production company Propaganda Films also took 30,000 square feet at 1741 N. Ivar Ave. Another big deal was TV Guide's 10-year lease for 60,000 square feet at 6922 Hollywood Blvd. for $2 per square foot, per month.
More traditional office space is filling up fast as well, according to Mitch Stokes of Madison Partners. There are eight 100,000-square-foot-plus office buildings in Hollywood, and average vacancy at these properties is a respectable 12.4 percent. Vacancy is even lower for buildings under 50,000 square feet, at 7.2 percent.
The building at 6255 Sunset Blvd. is a prime example of the robust nature of the Hollywood market. The building originally sold in the second quarter of 1998 for $90 per square foot to Kennedy-Wilson International. In the third quarter last year, it was sold to the Arcon Group for $133 per square foot, Stokes said.
An increase in demand and rents at the building explain the big jump in its sale price. The 300,000-square-foot, 32-story building went on line after a major renovation at $1.40 per square foot 18 months ago. Today it's 98 percent leased, Stokes said, and renting out at $2.10 per square foot. Tenant University Access has expanded its space there from 8,000 square feet to 60,000 during that period, adding 14,000 square feet in the first quarter.
"There's been a phenomenal progression of values and lease rates in this market," Stokes said. "Tenants continue to see value in Hollywood vs. Burbank or West L.A., and the redevelopment is really just getting started. As national retailers come in and the TrizecHahn Corp. project (a huge retail center at the intersection of Hollywood Boulevard and Highland Avenue) progresses, we're going to have a really good springboard for true urban redevelopment."
Over in West Hollywood, the pickings are slim as well, with limited office space on the market. According to Stokes, the city's total inventory is 750,000 square feet, with only about 50,000 vacant. The largest buildings are Luckman Plaza at 9200 Sunset and the 9000 Sunset building, both of which are leasing for around $2.50 per square foot.
The most significant deal in the area was just east of the Beverly Hills-West Hollywood border at Plaza del Sol. Miramax Films took 30,000 square feet for undisclosed terms.
"Space is tight and there were few deals in the fourth and first quarters," said David Lachoff of Grubb & Ellis. West Hollywood office vacancy is at 11.1 percent and monthly rents for class-A properties stand at $2.32 per square foot.
That looks good compared to, say, Century City, where rates are $2.45 per square foot, Stokes notes.
"West Hollywood's got a nice address and amenities and is a little cheaper," he said. "It's desirable, particularly for entertainment companies."
Lachoff agreed, saying, "It's more in demand than ever."
Like Hollywood, building conversions in West Hollywood are also contributing to the area's desirability.
"The conversion of the Pacific Design Center's green building later this year will add some capacity to the West Hollywood market," Stockwell pointed out. "I think it will be well received because it's such a cool space."
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