For the Westside office market, the first quarter of 2001 was in most ways a replay of 2000's fourth quarter the widening tech wreck torpedoed tenants, resulting in floods of newly available sublease space.
One of the nation's premier office markets, the Westside became historically tight in the late 1990s, as well-funded startup dot-com outfits thickly carpeted the trendy office parks and as professional firms frantically added staff to serve the red-hot demand for accountants, lawyers and financiers.
The entertainment industry showed steady growth as well. By 2000, the office vacancy rate in some Westside submarkets, such as Century City, was under 4 percent, while leases for top-flight space were being inked at more than $4 per square foot per month the first time, brokers said, that monthly lease rates actually topped vacancy rates.
But now, careful shoppers can find remarkable deals as in nearly half-off.
"The rents have come off significantly," said Matthew Miller, principal with Cresa Partners brokerage in West Los Angeles. "You had space going for $4 a square foot in 2000, and now you have sublease space going for $2 a square foot. Anybody who says this market hasn't changed is in denial."
The statistics suggest there are hard numbers behind Miller's sentiments. As reported by Grubb & Ellis Co., the vacancy rate in the Westside's 46.4 million square feet of office space was 8.8 percent in the first quarter, up from 6.3 percent a year earlier.
The picture darkens considerably at least from the landlord's perspective if one thinks about sublease space. According to brokerage Cushman Realty Corp., more than 1.11 million net square feet of space became available on the Westside in the first quarter, largely due to companies abandoning their premises.
"An excessive amount of direct and sublease space hit the region this first quarter due to the consolidation of the high-tech, media and dot-com industries," said Mitchell Russ, Cushman Realty's manager for real estate services in Los Angeles.
Six tech/media outfits alone MarchFirst, Stamps.com, Sapient, Sony Corp., Focus Media and e-tailer eToys Inc. together dumped almost a half-million of square feet on the market in the first quarter.
But some observers of the real estate market pointed out that due to Proposition U, which has limited the amount of commercial construction for more than 10 years, and a general reluctance of lenders to finance office construction since the real estate bloodbaths of the early 1990s there is no runaway glut of space in West Los Angeles.
Landlords with good space can sell or rent product, they said. "We are not seeing (declining rents or demand)," said Victor Coleman, president of Arden Realty Inc., the publicly traded real estate investment trust (REIT) and major Westside office tower owner.
"If you want 25,000 square feet of contiguous space, there is not a lot of it in West Los Angeles. Oh sure, the really hot deals are gone, the showing of space, the signing of a lease and occupation all in 15 days. Now it is back to the normal 60 days," he said.
Coleman said the market had simply returned to a more conventional pace of activity, one that does not translate into a slowdown. Indeed, Coleman's firm scored something of a coup when it had a major lease deal fall apart in its Howard Hughes Center property, but then quickly landed Vivendi-Universal's Havas Interactive subsidiary to take more than 90,000 square feet of space in the first quarter.
Coleman said the deal was not a fluke. "Most of our tenants continue to do well in this economy. This is not a recession, just a slowdown, and not a dramatic slowdown," he said.
Some say the looming entertainment industry strikes have, and will have, a telling effect on Westside real estate markets in the second quarter.
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Sublease Bargains Available As Westside Continues Slide
- COUNTY---Economic Downturn Starts To Gnaw at Office Markets
- WESTSIDE: Vacancies Soar as Sublease Space Swamps Market
- WESTSIDE - Feeding Frenzy' Making Space Very Tough to Find
- WESTSIDE---Increase in Security Hurting Already Battered Westside
- COUNTY---Countywide Vacancies Drop Despite Exodus On Westside
- WESTSIDE: Rents Hit Unprecedented Levels Amid Intense Demand