- Work proceeded on Phase I of the huge Playa Vista mixed-use development.
- Law firm Manatt Phelps & Phillips subleased 72,000 square feet of space at 11355 West Olympic Blvd.
- Sapient Corp. agreed to sublease out two floors of space in the Water Garden II project, fully furnished, at $1.80 a square foot.
- In response to the Sept. 11 terrorist attacks on the East Coast, security was increased greatly in buildings in Century City and other areas with tall office buildings.
Already hurting due to the dot-com meltdown, the office market in West Los Angeles tumbled further in the third quarter not helped by the Sept. 11 attacks.
"I drove in the Century City Plaza the other day, my first time ever. I get to the entrance to the parking, and there is a full-blown security station there, and a security guard asks to see my ID. I say, 'Okay,' and he looks at it. Then he says, 'Sir, can you pop open your trunk?'" said Neil Resnick, senior vice president with Grubb & Ellis Co., the real estate brokerage. "Yes, you can say people are going to think twice about signing a lease in this atmosphere."
Another Westside broker complains that it now takes him seven minutes to get through security arrangements at Fox Plaza, during which he shows his ID four times. "And they want to see it even if it's my fourth time in the building that day," the broker said.
Although the Sept. 11 events affected Westside offices, numbers already were soft in the third quarter due to the unfolding tech wreck and the generally lackluster economy. The vacancy rate for the entire Westside rose to 11.6 percent in the third quarter, up from 5.8 percent in the year-earlier period, according to Grubb & Ellis.
Within the Westside, there were variations. Santa Monica, stronghold of the dot-com mania, has turned soft, with vacancy rates hitting 16.3 percent in the third quarter, up from 1.7 percent a year earlier. Whereas, Century City, home to premier traditional businesses, posted a relatively tight 5.6 percent vacancy rate in the third quarter, compared with 3.9 percent in the year-earlier period.
The West Los Angeles average asking rent of $3.11 per square foot per month was down from $3.14 in the second quarter.
Brokers said real rents on the Westside are very difficult to determine, despite what any survey says. There are copious amounts of first-rate long-term sublease space available, for even less than $2 a square foot.
"I have sublease space available for $2 a square foot, and I can't lease it," said Michael Sitrick of Sitrick & Co., a public relations firm in Century City.
Jerry Porter, vice chairman of Cresa Partners, said that in the third quarter computer services giant Sapient Corp. subleased two floors of space in the mid-rise Water Garden II in Santa Monica project for $1.80 square foot.
Only 18 months ago, premier space on the Westside commanded $4 a square foot and up. While few have inked deals since Sept. 11, those would-be renters are finding bargains galore.
"I have been in the market recently with two tenants," said Porter. "I get back in the office after a day in the field, and I have unsolicited offers from landlords (for those tenants). That is the complete opposite from how it is has been in the last three years."
If the Westside lease market was very slow, the building sale market was nearly dormant by Sept. 11, and has stayed there since. There is a classic illiquid market, with both buyers and sellers unwilling to meet halfway.
"There is a huge gap between bid and asked prices today (for Westside office buildings), said David Rosenthal, co-founder of the Curtis & Rosenthal LLC real estate appraisal shop. "Buyers are saying: Look at the economy, and bidding low, while sellers are saying, This building was worth a lot just a little while ago, and still ought to be worth a lot," Rosenthal said. "Buyers and sellers aren't even on the same page."
Deals closed in the third quarter reflect negotiations and agreements made before Sept. 11, Rosenthal said. Steve Solomon, senior vice president with the Colliers Seeley International brokerage, agreed. "We just haven't seen the distressed sellers yet. We have a ways to go before we get there yet," he said.
Some real estate investors are avoiding offices and buying apartment buildings instead, said Rosenthal. "Multi-family is strong, the remaining bright spot on the real estate landscape ... and safe harbor for real estate capital," said Rosenthal.
Getting hit very hard in the third quarter was "creative space," those converted warehouses with bow truss roofs, or otherwise unusual office space, which thrived when dot-comers demanded alternatives to traditional office buildings. Over the previous three years, some millions of square feet of old warehouses were renovated for tech firms, often commanding $3 a square foot or more. Many such buildings are in the Culver City area, or Santa Monica's industrial parks.
Many of those would-be renters had unusual demands such as space in excess of 50,000 square feet. Many improvements were done, however, at tenant expense so owners did not take a hit on that aspect of their buildings.
Now, the warehouse look is somewhat passe, brokers said. Space that formerly ran for $3 a square foot is down as low as $2 a square foot, said Porter.
Many of the buildings are expected to return to warehouse use.
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