Major Retail Projects Fail to Counter Aging Office Base
By DANNY KING
Despite a government study concluding that Hollywood has the financial wherewithal to support itself as a separate city, its commercial real estate market could use some help.
In competition with a West Los Angeles submarket that continues to make more space available than any other area in the region, the Hollywood/West Hollywood market posted one of the largest vacancy jumps in Los Angeles County. Only Westwood and downtown Long Beach had larger jumps.
Hollywood's vacancy rate was 22 percent during the first quarter, up from 18 percent in the fourth quarter of 2001, according to Grubb & Ellis Co. Only LAX/Century Boulevard corridor had a higher vacancy figure at 27.4 percent.
"A client of mine has a 75,000-square-foot building that was rehabbed about nine months ago, and it's still empty," said Albert Shilton, senior managing director at Charles Dunn Co.
The Hollywood market is awkwardly situated. It lacks the newer product with larger 20,000-square-foot-plus floorplates and technological amenities necessary to draw in larger tenants from the Westside, but it's pricey enough to push smaller tenants toward nearby but less expensive areas like Miracle Mile and Wilshire Center.
"The issue that you have is that there aren't any newer office buildings," said Paul Stockwell, corporate managing director at Julien J. Studley Inc., who noted that the older buildings' smaller floor plates are a deterrent for efficiency-seeking tenants. "The parking is tight and the infrastructure isn't quite there, so the available space suffers a bit."
Despite this, asking rents for Class-A space have fallen just a penny during the first quarter from its $2.50 level for the like period a year ago, when the area's vacancy rate was just 12.1 percent. The level is a quarter above Miracle/Park Mile and nearly double that of Wilshire Center.
"A lot of tenants will go to Mid-Wilshire to get the alternative rents at $1.50 or less," said Rob Langer, managing partner at Meringoff Equities, who spoke of smaller firms whose five-year leases are coming due. "These tenants were in there at $1.65."
Also working against Hollywood's market is an entertainment industry that continues to consolidate operations in the area.
One move involved Priority Records, which ended its 35,000-square-foot lease at the CNN Building on Sunset Boulevard at the beginning of the year in favor of 15,000 square feet at the home of its parent company, the landmark Capitol Records building on Vine Street.
As a result, the biggest lease of the quarter was Liberation Publication's 15,000-square-foot deal at 6922 Hollywood Blvd., hardly a landmark transaction.
"Hollywood in general is really hurting," said Langer. "A lot of the buildings out there are not doing any deals."
Not that Langer's company hasn't tried. Meringoff Equities, whose 600,000 square feet of space makes up about 17 percent of the Hollywood office market, began offering six months free rent at its 150,000-square-foot Hollywood and Vine Plaza at the end of last year. "If the market today is more around the $2 range as opposed to $2.50, we're going to do deals at $2," said Langer.
Added Shilton: "Most of the owners, given the opportunity, would jump at anything north of $2.00."
There remains considerable sentiment that the efforts to revitalize the area, led by the Hollywood & Highland shopping complex, will spur additional demand even at the higher lease levels. Langer said Meringoff is on the verge of closing on two or three deals in the 20,000-square-foot range, showing an uptick in activity toward the end of the quarter.
"In the last two weeks to 30 days, we've seen a huge increase in calls and broker inquiries," added Christopher Bonbright, chief executive at Ramsey-Shilling Co.
"We all believe it will happen in Hollywood," said Stockwell. "It's kind of a neat place to be now, but it's still a work in progress."
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