Slow, Steady Growth Marks Ongoing Rebound of Market

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Slow, Steady Growth Marks Ongoing Rebound of Market

By BENJAMIN MARK COLE

Contributing Reporter

Despite the softened economy, downtown Los Angeles continued to pare down vacancy rates during the first quarter while adding splashes of life a new restaurant, a new health club and more housing.

The vacancy level improved to 17.3 percent from 17.8 percent in the fourth quarter, according to Grubb & Ellis Co. A year ago, the vacancy rate was 20.3 percent.

“It’s been slow, but steady growth (in the first quarter),” said Ted Simpson, senior director for Cushman & Wakefield Inc. And it’s coming from more traditional businesses law firms, insurers, government agencies, accounting firms and financial service companies instead of the tech or Hollywood crowds.

Downtown office rents for class A space crept upward to $2.34 a square foot per month in the first quarter, from $2.33 in the fourth quarter, but down from $2.39 in the first quarter of 2001. But it is those low rents, plus downtown’s central location, that boosted the office market in the first quarter.

“We have excellent sublease space available for $20 to $22 ($1.66 to $1.83 a square foot per month),” said Kinden Mitchell, marketing director with Colliers Seeley International, who is representing space in the north tower of Arco Plaza (515 S. Flower St.) and Citicorp Center at 444 S. Flower St. “That’s Class-A space. You can pay $3 or more for such space elsewhere, such as the Tri-Cities market (Burbank, Glendale, Pasadena) or the Westside.”

The savings add up. A tenant taking 100,000 square feet would save, roughly, $1.5 million a year leasing downtown, rather than in a more expensive submarket. “Seems like tenants are a bit more sensitive to the economy than in past years,” Mitchell said.

There were some lumps to be taken downtown in the first quarter. It long had been assumed that Korn/Ferry International Inc., the publicly held executive search firm, would abandon its Century City post and begin moving troops downtown in the first quarter. Instead, the firm stayed put, when Westside rents softened considerably in the wake of the tech wreck.

But downtown scored a major coup during the first quarter in all but nailing down law firm Howrey Simon Arnold & White. The growing national firm signed a 14-year extension on its space at 550 S. Hope St., while agreeing to occupy up to 100,498 square feet, from its current 63,000 square feet. The law firm will occupy all of the 11th, 12th, 14th and 15th floors and half of the 10th floor. The deal is valued at $41 million.

Coming into its own

Plus, more businesses are popping up downtown not in huge numbers, but enough to get noticed. A huge Gold’s Gym complex opened up at the Citicorp Plaza at 44 S. Flower St. and a branch of the Palm steakhouse restaurant opened near Staples Center at 11th and Flower.

Some say downtown is now reaping the benefits of circumstances that have been years and even decades in the making. More than 30 years ago, for example, plans were scrapped to build an east-west running “Beverly Hills Freeway” through what is now the Miracle Mile area. As a result, that Wilshire region has poor freeway access.

“The drive time is just taking longer and longer to get off the freeway and into Mid-Wilshire,” said Bill Boyd, senior vice president with Grubb & Ellis. “We are seeing people leave Mid-Wilshire and come downtown. This is where the freeways converge. The mass transportation all comes here.”

Downtown’s central location means it can draw on a labor pool extending from West Covina to Santa Monica, from Orange County to Simi Valley, said Jeff Ingham, regional leasing director with Jones Lang LaSalle.

Ingham said he is getting more bites than ever, especially on space he is leasing at TransAmerica Center, the tower at 11th Street and Broadway.

“We are quoting $18 to $22 ($1.50 to $1.83, per square foot per month) in the tower part of the complex, and in the Broadway Building (a smaller structure), even less,” he said.

Like other brokers, Ingham noted that land values have been rising downtown, especially around the Staples Center, where property prices in the first quarter again rose in the face of a planned build-out of a Staples entertainment-retail and office complex. Also in the first quarter, the Cathedral of Our Lady of the Angels drew closer to completion, as did Disney Concert Hall.

Downtown housing continues to be mentioned as one of the drivers of the market. In the first quarter, construction proceeded on 91 condominium units at 1140 S. Flower St., near the Staples Center, one of several housing projects in progress.

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