Wanting to cut costs in the decelerating economy, several major Century City tenants are scrambling to relocate to more-affordable offices.
Some occupants of the highest-priced towers Fox Plaza and SunAmerica Center are looking for less expensive space nearby. Others are trying to reduce their presence in Century City. Still others are looking to bail out altogether.
Estimates vary as to how much office rents in Century City have softened in recent months, with one source estimating the decline at 20 percent.
Jim Travers, president of the tenant-rep brokerage firm Travers Realty Corp., has also seen Century City rents softening. “Landlords are talking to each other right now, telling themselves not to panic ‘Don’t fold the cards,'” he said. “But there’s no question that the tight grip landlords had on all of us is starting to loosen.”
Even so, rents are likely to remain among the most expensive in Southern California and the vacancy rate will probably stay in the low single-digit range primarily because the Westside hub is still such a prestigious address.
“Century City is still hot, and there’s low vacancy, but it has become very volatile,” said Anton “Tony” Natsis, a partner at Allen Matkins Leck Gamble & Mallory who represents several big Century City landlords. “It’s a great game of cat and mouse. Ultimately, a few people are going to be left out in the cold.”
But several tenants that don’t necessarily need to be in Century City might be leaving.
Korn/Ferry International, for example, is evaluating downtown L.A. locations for a possible relocation of its Century City headquarters, informed sources said. Earlier this year, Ernst & Young relocated most of its Century City operations to downtown, vacating two of its three floors at 2049 Century Park East. Few staff members are permanently stationed at the remaining floor, with much of the space used on an as-needed “hoteling” basis.
Bear Stearns & Co. Inc. is looking to exit its high-priced offices at SunAmerica Center. That prestige tower’s anchor tenant, SunAmerica Inc., is weighing a drastic reduction of its 150,000-square-foot presence, possibly just retaining a small senior management team there.
“They may decide to just keep enough space to retain the (building-top) sign that’s an important sign,” said one broker familiar with the SunAmerica deliberations.
Increased expenses
Tenants are not just responding to high rents but operating costs. One such cost is parking a major operating expense for tenants with lots of employees and visitors. Parking fees at blue-chip Century City buildings have soared by 20 percent or more over the past two years.
“Parking has hit 15 percent-plus (of rent), as an add-on,” said Carl Muhlstein, a senior broker at Cushman & Wakefield Inc. “So if your rent is $40 (annual per square foot), you have another $6 for parking.”
Escalating costs of Century City were the primary reason Metro-Goldwyn-Mayer opted not to exercise its option to lease the 19th floor of the new MGM Tower, currently under construction on Constellation Boulevard.
“They decided to put certain producers in other locations. And they might end up not moving a 30,000-square-foot computer room at MGM Plaza (in Santa Monica),” said one source close to the deliberations.
Meanwhile, MGM has until Oct. 31 to decide whether to relinquish the 16th, 17th and 18th floors as well, which would reduce its presence in the tower by 74,000 square feet, leaving it with 330,000 square feet.
Such cost-cutting moves are being discussed by an increasing number of law firms. For example, Kattin Muchin & Zavis is relocating from Fox Plaza into 60,000 square feet of lower-priced sublease space at the Delta Towers.
Legal strategizing
“All these (law firms) are threatening to go to some location outside Century City, but they’d be nuts to do that,” said Natsis. “If you let people know you’re not going to be Century City-based because you want to save rent, you’d be portrayed as cheap.”
Muhlstein concurred that Century City remains the “No. 1 synergistic address for law firms,” but disagreed that exiting the hub would necessarily detract from a firm’s image.
“I remember when people said investment banks would run into trouble if they left downtown, but all the premier banks are now in Century City,” he said.
