Increased Vacancies Create Bargain Hunter Opportunity
By CONOR DOUGHERTY
The Wilshire Center area, which has been capitalizing on its appeal to bargain hunting tenants, had a positive fourth quarter despite an increase in vacancy rates.
While vacancies jumped to 15.1 percent from 14.8 percent in the third quarter, the submarket is well ahead of the 21.4 percent rate recorded in the fourth quarter of 2000, according to Grubb & Ellis Co.
The increase in the amount of space available coincided with a slight bump up in asking rents, to $1.32 per foot per month in the fourth quarter from $1.30 in the third.
The rise in both vacancies and rents is happening because of the departure of some large tenants at a time when the area is considered a relative value for smaller businesses.
The biggest hole was left when architects Daniel, Mann, Johnson & Mendenhall left last summer and took its 150,000 square foot office requirement downtown.
"More people are starting to look for bargains," said Michael Neil, an associate with Grubb & Ellis. "I expect prices will continue to rise and the market will continue to tighten."
The area still is considered a haven for bargain hunters particularly the nonprofits and government agencies that dominate the submarket and Neil said he thinks the market is positioned to do better in down times, when an increasing number of companies are looking to cut costs.
Unlike other pockets of the Los Angeles market hit by the recession and Sept. 11 attacks, Wilshire Center saw its fair share of deals.
Among them were Softect Solutions' deal to expand from 11,000 square feet to 20,000 square feet with an option for an additional 15,000 at 3325 Wilshire Blvd. At the Wilshire Colonnade, Ticketmaster sub-leased an additional 40,000 square feet from Aames Home Loan for five years for $3 million.
The American Federation of Musicians' West Coast office relocated from Hollywood to 3550 Wilshire Blvd. with a 10-year, 5,500-square-foot lease. Other deals included the Los Angeles Women's Foundation's lease for 3,000 square feet at 3550 Wilshire Blvd. and the Jewish Journal's lease for 5,500 square feet at 3580 Wilshire Blvd.
The investment side made strides as well, as Donald T. Sterling Corp. struck deals for four multi-family buildings for just under $8.2 million. In total, the four properties added 137 units to the billionaire's extensive residential real estate portfolio.
Further west, the Miracle Mile/Park Mile area saw little action. The vacancy rate did decrease slightly, from 13.7 percent to 13.3 percent, confirming that no substantial leases have been signed in the last three months. In the fourth quarter of 2000 the area's vacancy rate was 12.4 percent.
Still, net absorption figures show 18,599 more square feet came off the market than was put back.
Asking rent for Miracle Mile/Park Mile Class A space decreased to $2.31 by year's end, from $2.47 in the third quarter and $2.44 in the fourth quarter of 2000.
Rosey Miller, a senior managing director at Julien J. Studley Inc., said landlords are dropping their rental rates in hopes of maintaining an existing tenant base as well as luring additional tenants into the market.
"Competition has increased substantially as a result of the softening of the (Tri-cities) area and current softening on the Westside," he said. Miller also said he expects that trend to continue through the year.
Jerry Snyder, a senior partner at J.H. Snyder Co., which owns about 1 million square feet of Miracle Mile office space, said asking rent has "definitely" gone down. "Tenants are looking for better deals and they're getting them," he said.
Throughout the boom of the late '90s, the Miracle Mile area was seen as a reasonable alternative by price-sensitive tenants looking for office space on the Westside, generally regarded as a prime location for entertainment and creative companies.
Miller said he expects to see a reversal of that trend: certain Miracle Mile tenants, still itching for space on the Westside, will leave the area when rents in cities like Santa Monica begin to come down.
"We're going to see a softening in the Miracle Mile due to large blocks of quality contiguous space coming available further West," Miller said.
According to Grubb & Ellis figures, that's already starting to happen.
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