Handful of Large Deals Keeps Market in Positive Territory
By MARGOT CARMICHAEL LESTER
The Westside leasing market remained sluggish in the third quarter, although there was substantial activity in the Marina del Rey and Culver City submarkets.
Overall vacancy levels for the July-September period stood at 15.4 percent, compared with 16 percent for the previous quarter and 15.4 percent for the like period a year earlier, according to Grubb & Ellis Co.
Net absorption (the amount of space newly occupied less the amount of newly available) fell to 294,435 square feet from 574,379 square feet in the previous quarter. Still, asking rents for Class-A space are slipping to $2.74 in the third quarter from $2.77 in the previous three months and $2.90 a year earlier.
"Asking rents are falling because effective rents are already far lower," said Darren Senger, a Grubb & Ellis research analyst. "In other words, if you want to rent a space, it's better to advertise at rents somewhat close to what you expect to get."
In perhaps the most-anticipated deal, HBO signed a 15-year lease for 110,000 square feet at Colorado Center in Santa Monica. The market's biggest transaction was Electronic Arts' move to Playa Vista's Water's Edge campus in a deal estimated at $100 million.
The number one market on the Westside remained Beverly Hills, where Class-A asking rates remained steady at $2.91 per square foot, up from $2.82 for the like period in 2002. Class-B rates dipped 1 cent from the second quarter, to $2.74 per square foot. The overall vacancy rate was 12.8 percent, down slightly from the previous quarter. "There is very little space available in the market with the exception of the Maple Drive corridor," said Marc Lebowitz, vice president at First Property Realty Corp.
Thus, Class-B space saw all the leasing action. Tower Hematology sublet 19,514 square feet in a seven-year deal from AIMCO at 9090 Wilshire Blvd. Outlook Films sublet 9,838 square feet from The Firm at 9100 Wilshire Blvd. Terms for both deals were undisclosed. Washington Mutual leased 8,500 square feet at the Buckeye Building (8500 Wilshire Blvd.) for $2.94 per square foot in a 10-year deal.
Absorption was the story in Westwood, where rates fluctuated wildly in the last three quarters. The submarket began the year at 3,543 square feet, bumped to 29,898 in the second and dropped to negative 77,042 in the third.
As a result, third quarter vacancy is the highest all year at 22.5 percent, up from 19.9 percent in the second quarter and 21.2 percent in the first. Those rates put downward pressure on rents, which sank from $2.99 in the second quarter to $2.90 in the third.
The only deal of note: Spyglass Entertainment left Burbank for 17,500 square feet in 10900 Wilshire Blvd. in Westwood. The $2.72 per-square-foot lease reduced the 220,000-square-foot building's vacancy rate to 10 percent.
Vacancy continues to plague Century City, even as Trammell Crow Co. pursues plans to raze the ABC Entertainment Center and develop a 779,000-square-foot office and entertainment complex. Rates stood at 15.4 percent in the third quarter, up from 11.2 percent a year earlier.
Two buildings, 1999 Avenue of the Stars and 2020 Century Park East have 200,000 square feet or more available. "At least 10 more buildings have 85,000 square feet or more on the market," said Lebowitz.
And that's after three new deals. Konami of America leased 13,053 at Fox Plaza (2121 Avenue of the Stars) for 40 months at $3.35 per square foot. Valencia Roads took 12,409 square feet in Century Plaza North for five years at $3.29 per square foot. Wilmington Trust signed 8,600 square feet for 65 months at $4.38 per square foot for the 17th floor of 10250 Constellation Ave. In a renewal, Bear Stearns & Co. took 75,000-foot space at SunAmerica Center at 1999 Ave. of the Stars, in a 10-year, $35 million deal.
As for the investment side, activity remained brisk mainly due to low interest rates and the area's desirability. "The Westside investment market is still incredibly hot," said Bob Safai, managing partner for Madison Partners. "The lack of alternative investment vehicles makes real estate the product du jour."
Among the deals: Symantec Corp. purchased a 9-acre parcel at Bristol Parkway and Slauson Avenue in Culver City from Bank of Montreal for a research and development campus. The $60-million development will be built in two phases, the first completed by 2007.
In West L.A., Papazian-Hirsch Entertainment acquired the 50,000-square-foot Fox Pico building at 10301 Pico Blvd. from Douglas Emmett & Co. for about $11 million.
"As long as interest rates stay low, the Westside investment market should flourish because of its demographics, barriers to entry, existing tenant base and proximity to business owners," Safai said. "It's the best investment area in town."
- Electronic Arts leased 250,000 square feet in Playa Vista's Water Edge campus.
- HBO signed a 15-year lease for 104,304 square-feet at Santa Monica's Colorado Center.
- Spyglass Entertainment leased 17,500-square-feet at 10900 Wilshire Blvd.
- Symantec Corp. purchased a 9-acre parcel in Culver City.
- Outlook Films sublet 9,838 square feet from The Firm at 9100 Wilshire Blvd.
- Papazian-Hirsch Entertainment acquired the 50,000-square-foot building at 10301 Pico Blvd. from Douglas Emmett & Co.
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