The Westside commercial real estate boom reached crescendo levels in the first quarter, as dot-com tenants continued to flood the market.
The frantic activity caused the overall vacancy rate to fall to 5.6 percent for the first quarter, way down from 10.5 percent at year-end 1999, according to Grubb & Ellis Co.
"The velocity of leasing is as great as I've seen it in my entire career," said Bob Safai, a principal at Madison Partners.
That demand is also propelling rental rates through the roof. Long the priciest market in L.A. County, the Westside saw its average monthly office rental rate rise to $2.81 a square foot, up from $2.72 in the fourth quarter. And those average rents are somewhat deceptive, because prime space is going for considerably more; Stan Gerlach, senior vice president with CB Richard Ellis, said rents at select Westside buildings could hit $5 per square foot before the end of the year.
"I sent 250 brokers a notice about an Ocean Park Boulevard building with some suites available and got 70 phone calls," Gerlach said. "It's a feeding frenzy."
The Westside's hottest submarket is Santa Monica, which saw its vacancy plummet to 1.9 percent, down from 8.3 percent in the fourth quarter of 1999. Much of that drop was a result of heated preleasing activity at the second phase of the Water Garden, which is now 65 percent full, according to Clifford Goldstein, partner at J.H. Snyder Co.
New Water Garden tenants include Carat USA, a public relations agency that signed a 40,000-square-foot lease; Regis Business Centers, which will occupy 48,000 square feet; and law firm Greenberg Traurig, which took 28,000 square feet of space.
Tenants in current lease negotiations are enough to fill the 700,000-square-foot project if they all sign on, Goldstein said. By comparison, the Water Garden's first phase, built in the late '80s, took four and a half years to absorb.
"You have big blocks of space that are getting absorbed, which take up a considerable part of the market," Safai said. "You're not talking about a big market."
That scarcity is pushing up values of real estate to record levels.
For example, brokers point to the $360 million sale of the MGM Plaza complex to New York-based Tishman Speyer Properties. MaguirePartners sold the 1.1 million-square-foot complex during the first quarter at a profit close to $100 million, industry sources said.
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