By Contributing Reporter
Little by little, the shabby fa & #231;ades of Hollywood Entertainment District commercial buildings are being returned to their former glory, while their interiors are being upgraded to state-of-the-art standards. The result is low vacancy and rising asking rents particularly at class-A properties.
Grubb & Ellis Co. research shows that the office vacancy rate across all classes for the Hollywood/West Hollywood submarket improved only slightly to 9.4 percent in the second quarter from 9.6 percent in the first, but that represents a major improvement from a year ago, when the vacancy rate stood at 14.6 percent.
Rents are rising fast. The monthly asking rate for class-A space leaped from $2.33 per square foot in the first quarter to $2.47 in the second.
A key factor affecting both lease and vacancy rates is a shortage of large blocks of space.
"The largest block of space in the submarket is 15,000 square feet at 6930 Hollywood (Blvd). It's hard to get absorption with such little footprints," said broker Mitch Stokes of Madison Partners.
Indeed, net absorption in the Hollywood/West Hollywood submarket was only 39,410 square feet during the second quarter. Brokers are increasingly frustrated at having such a limited amount of space to show prospective tenants.
"A couple of quarters ago, tenants could be persuaded to look at Hollywood," said broker Paul Stockwell of Julien J. Studley. "Now they want to look there so much so that we're seeing interest spill over the Cahuenga Pass and into Universal City. You've got to have product to be a great market, however, and Hollywood doesn't have a lot of inventory. But it's coming."
It is indeed. Renovation of the 60,000-square-foot TV Guide building at 6922 Hollywood Blvd. is expected to be complete by year end, opening up about 50,000 square feet of new space in the district, according to Stockwell.
Meanwhile, there is a good deal of development activity along Vine Street from Fountain Avenue to Sunset Boulevard. At the legendary intersection of Hollywood and Vine, developer Tom Gilmore is renovating 6253 Hollywood, the 1920s-era former home of The Equitable. The 12-story, 116,000-square-foot building is on the National Register of Historic Places. Gilmore bought it and some adjacent land for about $5 million and expects to pour at least $6 million into the restoration.
"We've got the 10,000-square-foot street level fully leased," reports Sheila Holincheck, the property's general manager. The tenants are the Hollywood and Vine Diner, the Hollywood Prop Department (a retail store) and the Ultra Lounge (a bar).
Average rents for the building's office space is $2.25 per square foot, and Holincheck says the building is about 75 percent leased. The first tenants mostly entertainment-related, creative and high-tech companies will begin moving in October, with others coming in through year end.
Footprints range from smaller spaces (10,000 square feet and less) to the penthouse floor. Some "Raymond Chandler-esque" historic suites are available, as well as lofty spaces with polished concrete floors.
Elsewhere on Vine, Regent Properties started a mixed-use development at Sunset featuring street-level retail/restaurant space and loft-style apartments. The Pantages Theatre is undergoing a major renovation at Hollywood Boulevard. And Accord Interests LLC has embarked on a 118,000-square-foot creative office/production project at the old ABC Studios property at Fountain, which is scheduled to be completed in the first quarter of 2001.
Meanwhile, the West Hollywood market remains tight, notes David Lachoff of Grubb & Ellis. "Just like all of Los Angeles, West Hollywood is running out of space. That's forcing rental rates up and turning secondary markets like Hollywood proper into primary markets," Lachoff said.
He compares the demand/supply imbalance to conditions in the Bay Area. "Some of L.A.'s submarkets could become San Francisco South because the dot-coms are directly or indirectly responsible for taking so much space off the market," he said.
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