Major Events:

- Daniel Mann Johnson Mendehall leased 125,000 square feet at Arco Plaza.

- AON Service Corp. leased 94,000 square feet at 707 Wilshire.

- Both Disney Concert Hall and the Cathedral of Our Lady of The Angels are under construction

- Staples II, an entertainment and shopping complex, moved forward in the city approval process.

- Caltrans leased 100,000 square feet at 801 S. Grand St.

- A $300 million federal court building is planned for First Street and Broadway, and a $180 million transportation building is slated for First and Main Streets.

Downtown Los Angeles keeps filling up. The July-September period reflected ongoing improvement in the area, with the vacancy rate in the central core's skyscrapers falling to 17.5 percent, down from 22.4 percent in the year-earlier quarter.

While never attaining hip status by the tech community, downtown may yet have the last laugh. Vacancy rates in Santa Monica office buildings, heart of the dot-com bubble, were nearly as high as downtown's in the third quarter.

"If you want space in one of the trophy buildings, you will find there is not much left and it will cost $3 a square foot or more," said Steve Marcussen, executive director with Cushman & Wakefield of California Inc.

"We even now have full buildings. The tower at 400 S. Hope St., the Mellon Bank Plaza, is full for the first time since 1982. The 865 S. Figueroa tower (the skyscraper with the signage 'TCW' on the top) is full for the first time since it was built in 1991," he said.

Average Class-A rents fell, however, to $2.41 in the third quarter, from $2.43 the quarter before. Some of this can be attributed to the events of Sept. 11, brokers said.

After seeing 141,276 more square feet come on the market last quarter, downtown in the third quarter absorbed 375,742 square feet, the largest gain in any of the region's submarkets.

What tenants get downtown is a good deal. The area has abundant first class space, with the polished elevators and marble cladding. Downtown towers have been wanting for tenants ever since a late 1980s building boom was followed by a wave of corporate defections, dislocations and downsizes.

The result is that downtown rents today are as low as the early 1970s, a bargain that is drawing businesses. "People are realizing you can lease very attractive space downtown for very attractive rates," said John Battle, principal with brokerage Lee & Associates. "Tenants are moving downtown from other outlying office markets, including the Westside."

Downtown brokers herald the decision of headhunting firm Korn Ferry International to sublease 75,000 square feet in the Gas Co. tower downtown, moving its headquarters from a Century City location.

Even long-sleepy Arco Plaza, the black marble clad twin towers owned since 1986 by Japanese insurance giant Shuwa Corp., saw action in the third quarter. Architecture giant Daniel Mann Johnson Mendehall (DMJM) took 125,000 square feet in the complex. Terms were not disclosed. Even so, the travails of downtown can be seen in the value of Arco Plaza: The complex was bought by Shuwa for $650 million in 1986, and is said to be worth about $250 million today.

For tenants willing to bargain hunt, downtown remains a treasure trove. "You can get space in the 801 S. Grand building (also owned by Shuwa) for $1.10 a square foot. Caltrans (the state agency) just leased 100,000 square feet there," said Marcussen.

Some believe that the central city is fitfully moving ahead with developers' goals in part, because downtown is about the only place left in Los Angeles that actually wants new and major construction.

"There is no other part of the city that wants more density. People are actively opposed to new projects, and trying to protect (their lifestyles)," said Dan Rosenfeld, principal with Urban Partners. "Where else in the city (but downtown) could you build a Staples or a high rise?"

With residential rents escalating, even new high-rise, steel and concrete apartments buildings are coming close to penciling out, said Rosenfeld. He noted that more downtown housing, along with amenities such as the Disney Concert Hall, the new Cathedral, the pending Staples shopping and entertainment complex, many new restaurants, and an improved Los Angeles River frontage, will make downtown more attractive.

In addition, a $300 million federal court project is slated for the corner of First Street and Broadway, while the City of Los Angeles and State of California will share in a $180 million transportation building at First Street and Main Street. The now closed but architecturally appealing County Hall of Justice has been approved for a $100-to-$150 million makeover and reopening.

While some brokers said downtown seems to have shrugged off the events of Sept. 11, Battle said that leasing is "flat," as "people are holding off making major decisions." Before leasing starts anew, tenants will have to have a better feel for the fallout from the terrorism, and the shape of the economy, he said.

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