Activity by Large Users Sparks Optimism in Mid-Sized Market
By MARGOT CARMICHAEL LESTER
For the first time since the dot-com bust lured tenants away with bargains on the Westside and in Wilshire Center, brokers on the western end of the Wilshire Corridor are feeling a little more optimistic.
"We're seeing several users in the 200,000-square-foot requirement range looking in this area," said Marc Lebowitz, vice president of First Property Realty Corp. "Several deals have leases pending. There's going to be absolute positive absorption in the coming quarters."
For the time being, though, negative net absorption of 20,768 square feet in the first quarter helped drive the Miracle Mile/Park Mile vacancy rate up to 16.3 percent from 15.7 percent in the previous three months, according to Grubb & Ellis Co. That's 3.5 percentage points higher than in Wilshire Center to the east, which makes up the remainder of the Wilshire Corridor.
Still, Miracle Mile/Park Mile is doing better than it was in the first quarter of 2003, when the vacancy rate was 19.2 percent.
Asking rates for Class-A properties in Miracle Mile/Park Mile dipped slightly to $2.09 per square foot from $2.10 per square foot in the fourth quarter, while Class-B rates fell to $1.74 from $1.81.
"There are many opportunities in the Class-A buildings, which means that the Class-B buildings need to drop rates to compete for tenants," said Chris Runyen, vice president of Grubb & Ellis.
Tenant and landlord brokers working the submarket say the number of tours was up in the first quarter, and they expect to see leasing activity increase.
"This is an opportunity to get fairly reasonable rates," said Mitch Stokes, a broker with Madison Partners. "Small and medium-size businesses have a general feeling that the economy is improving or will improve soon. The savvier clients realize this is a good time to renew."
Entertainment companies are driving the activity, said Lebowitz. "Miracle Mile/Park Mile is a very desirable location for these tenants," he said.
During the first quarter, deal flow in Miracle Mile/Park Mile was low.
Two renewals were inked at 4221 Wilshire Blvd. McDonald & Associates renewed and expanded to 11,000 square feet and United Telecom renewed for 6,000 square feet. Both deals were for five years at $1.70 per square foot.
The sole new transaction of note was Twentieth Century Fox's animation group's lease of 30,000 square feet at Wilshire Courtyard in a two-year deal for about $2.25 per square foot.
The investment market wasn't much more active. Decron Properties Corp. closed on the 86,000-square-foot building at 6222 Wilshire Blvd. that was in escrow at year-end. The owner, Oaktree Capital, sold the property for $14.5 million.
The Class-A building, home to the German Consulate among other tenants, was about 17 percent vacant at the time of the sale. Decron will occupy about 7,500 square feet. Madison Partners is negotiating with a tenant for the remaining 7,500 square feet to bring the building to 100 percent occupancy in the second quarter.
David Lee's Jamison Properties Inc. added 4322 Wilshire Blvd. in Park Mile to its portfolio. The 47,000-square-foot building, which is 60 percent occupied, moved for $6.7 million.
For Wilshire Center, which makes up the eastern end of the corridor, office vacancies rose to 12.8 percent in the first quarter from 12.4 percent in the previous three months and 12.3 percent in the year-ago first quarter.
Net absorption was negative 34,919 square feet and Class-A asking rents rose to $1.43 a square foot from $1.42 in the November-December period quarter and $1.36 in the first quarter of 2003.
"The story with Mid-Wilshire has always been steady recovery from 1995," Runyen said. "With vacancy rates at about 12 percent, the market is doing well and rates are starting to increase as the A and B buildings are filling up."
Runyen said he doesn't expect things to change anytime soon. "Most transactions are lease renewals and that market still offers the best economic value in the LA Basin," he said.
World Financial Group renewed at 3600 Wilshire for 11,000 square feet and Penny Web Inc. renewed 9,500 square feet at 3333 Wilshire. Both deals were in the $1.25-per-square-foot range.
In other transactions, two law firms relocated to 3550 Wilshire Blvd. at $1.20 per square foot. The Offices of David Bloom moved from 3325 Wilshire into about 8,000 square feet; and Hirsch Reich Adell Crost & Cvitan moved from 501 Shatto into about 9,000 square feet.
Investment activity was nil, Runyen explained, because "Jamison owns most of the market, and it is not planning to sell anything."
- Jamison Properties Inc. bought 4322 Wilshire Blvd. for $6.7 million.
- Fox Television leased 30,000 square feet at Wilshire Courtyard for about $2.25 per square foot.
- Two renewals were inked at 4221 Wilshire Blvd. for $1.70 per square foot: McDonald & Associates and United Telecom.
- World Financial Group renewed at 3600 Wilshire Blvd., for 11,000 square feet at $1.25 per square foot.
- Penny Web Inc. renewed 9,500 square feet at 3333 Wilshire Blvd. for $1.25 per square foot.
- At 3550 Wilshire Blvd., the Offices of David Bloom moved into about 8,000 square feet, and Hirsch Reich Adell Crost & Cvitan moved into about 9,000 square feet. Both closed at $1.20 per square foot.
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