Off-Price Alternative Remains Steady, Led by Smaller Deals
By MARGOT CARMICHAEL LESTER
Stability was the watchword in the Wilshire Corridor submarkets of Wilshire Center and Miracle Mile/Park Mile for the first half of 2003. Both closed the first two quarters with relatively solid numbers.
The traditionally stronger Mid-Wilshire market again performed well, boasting declining vacancies and increasing rents, while Miracle Mile/Park Mile held steady, arguably an improvement from the continued slides over the last several quarters.
Vacancy rates in Mid-Wilshire dipped to 11.7 percent from 12.3 percent in the first quarter and 12.7 percent a year earlier, according to Grubb & Ellis Co.
Average asking rates for Class-A space inched up to $1.39 per square foot from $1.36 in the first quarter and $1.30 in the year ago period. Net absorption (the amount of space newly occupied less the amount newly available) remained positive, at 45,733 square feet.
Activity stayed true to Mid-Wilshire's base of smaller tenants, attracted by low rent rates and proximity to downtown, Hollywood and the Westside.
Among the smaller deals that propelled the market were leases by the Service Employees International Union, which did a renewal/expansion for 8,000 square feet over seven years at 3055 Wilshire Blvd. Diamond International leased 8,422 square feet of retail space at 2600 Wilshire Blvd. for 10 years.
The area, said Chris Runyen, a vice president at Grubb & Ellis, is very stable.
"It's no longer subject to the departures of major tenants that it was 10 years ago," he said. "I mean, where are you going to go when you're paying $1.25 a square foot?"
But at least one broker saw signs of downward pressure on rents.
"I think there will be more space coming back on the market," predicted Mark Robinson, corporate managing director for Julien J. Studley Inc. "There will be more bankruptcies and giving space back. That will create pressure for rents to stay low or come lower."
The leasing activity to date, however, helped feed investment in the second quarter.
Jamison Properties added to its extensive portfolio with two deals in the quarter, purchasing 3545 Wilshire Blvd. for $6.9 million and 2024 W. 6th St. for $7.6 million. The 66,000-square-foot Wilshire Boulevard building was sold by Wilshire Building Co. LLC, and was fully leased at the time of sale, taking one of the highest per-square-foot prices recorded in Wilshire Center in years. Jamison, owned by David Lee, plans a mixed-use development at the 6th Street site, which it purchased from Alvarado Grand Plaza LLC.
Accord/WIL Members LLC bought 3670 Wilshire Blvd. for $11.8 million from Great American Insurance Co. The 55,000-square-foot property will be developed into a mixed-use project featuring office, retail and rental residential.
Miracle Mile/Park Mile
The Miracle Mile/Park Mile market held steady, with vacancies virtually unchanged at 19.3 percent, compared with 19.2 percent for the first quarter. Average asking rents for Class-A space was unchanged at $2.05.
Deal velocity in the submarket was almost non-existent.
"The second quarter fall off is because all the real deals were done in the first quarter," Robinson said. "And those first quarter deals should have been done in the fourth quarter. It took the year ending and deals not closing for landlords to see the reality."
As a result, effective rates came in almost 50 cents lower than asking rates. In one of the few notable deals, Southland Publishing Inc. took 5,050 square feet at 5900 Wilshire Blvd. at an effective rate of $1.59 for 60 months.
Net absorption rose to 65,394 square feet in the second quarter from negative 61,862 square feet in the first three months. "There weren't any big deals, but a lot of little deals ate up the space," said Mitch Stokes, an agent with Madison Partners.
Another contributing factor could be sublease space that was on the market at Wilshire Courtyard, at 5700-5750 Wilshire Blvd. Interpublic Group had listed about 40,000 square feet for sublease.
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