The dot-com downturn seems to be benefiting the Wilshire Corridor. As lots of Internet startups move to cut costs, the area's relatively affordable office rents are looking increasingly attractive to companies that are being priced out of the Westside.
"It's all about economics and parking," said Chris Runyan, a broker with Grubb & Ellis Co. "(Tech) companies are smarter and less bullish. They don't have millions to spend anymore, so they have to stretch their dollars. Most of the buildings they're moving into land around $1.25 per square foot (per month). That looks good not only to them, but to investors who want to see these companies keep costs low."
Overall, the Wilshire Corridor continued to perform steadily in the third quarter, driven by robust action in the long-downtrodden Wilshire Center submarket, which is also known as Mid-Wilshire.
The submarket's vacancy rate dropped to a respectable 17.9 percent in the third quarter, improved from 20.5 percent in the second quarter, according to Grubb & Ellis.
The improved vacancy rate came as the result of strong net absorption (the amount of space newly occupied minus the amount newly available). Office tenants absorbed 186,373 square feet of Wilshire Center space in the third quarter, a big jump from the 29,143 square feet they absorbed in the second quarter.
And that strong leasing action is pushing up rents, with the average monthly rental rate for class-A space rising to $1.34 per square foot in the third quarter, up from $1.28 in the second quarter.
Unlike other submarkets in L.A. County, Wilshire Center hasn't really seen a slowdown in leasing by technology companies, Runyan said.
"(Dot-coms) are still close enough to the entertainment companies located in Santa Monica and on the Westside, but they don't have to pay for the premium real estate," he said. "It's a good solution."
The 3000 block of Wilshire Boulevard was especially busy in the third quarter.
At Central Plaza at 3440 Wilshire, Click2Asia.com leased 28,000 square feet, and EducationBox.com took 7,000 square feet. In addition, the California Design College renewed its lease for 25,000 square feet.
At Metro Plaza at 3530 Wilshire, BrainRush leased 22,000 square feet. Just down the block, Future Media took 25,000 square feet at 3580 Wilshire.
Meanwhile, Marian College renewed its deal for 12,000 square feet at 3325 Wilshire, while HostPro, a Web hosting company, took an additional 18,000 square feet at 3250 Wilshire.
"We're really excited about what's happening in Mid-Wilshire," said Runyan. "We're seeing a pretty good jump in activity this year."
David Lee continued in his aggressive acquisition mode in the third quarter, purchasing a 10-story building at 3333 Wilshire in August for $16 million. The 242,000-square-foot building is 75 percent occupied.
Farther west on the Wilshire Corridor, the Miracle Mile/Park Mile submarket saw its vacancy rate tick slightly higher in the third quarter, coming in at 9.4 percent from 9.0 percent in the second period.
The average asking rental rate remained virtually unchanged at $2.35 per square foot per month, down slightly from $2.37 in the second quarter. Net absorption turned negative, with tenants vacating 23,757 square feet more than they moved into. Despite the slight downturn, area brokers insisted market conditions remain strong.
"We're seeing (lease) rates increase in the top properties in Miracle Mile and Park Mile," said Scott Murphy of Prentiss Properties Limited Inc., which handles property at 6500 Wilshire.
In major third-quarter deals in the submarket, J. Walter Thompson renewed its lease for 40,000 square feet at 6500 Wilshire and took an additional 20,000 square feet in a five-year, $3.5 million deal.
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