Investing Leads Market Activity As Office Leasing Remains Soft
By PAT MAIO
The conversion of office buildings to condominiums remains the theme in Hollywood and West Hollywood, while office vacancy rates keep rising on a year-over-year basis.
The Hollywood/West Hollywood vacancy rate in the January-March period rose slightly to 21.9 percent, up from 19.3 percent in the fourth quarter and 18.8 percent in the year-earlier quarter. The rise in availability came as 3,713 fewer square feet were returned to the market than were taken off. In the previous quarter, the market posted net absorption of 39,000 square feet.
While much of the leasing activity was done at below market rates, more available space contributed in part to a modest downward tick in rents. Quoted rates for Class-A office space fell to $2.28 in the first quarter, from $2.35 in the previous three months, but were still below the year-ago rate of $2.37.
"This is not a bad time to negotiate with your landlord," said Richard Ringer, senior investment associate with Marcus & Millichap in West Los Angeles. "We are in a supply and demand market, not a dollars and cents market."
The office oversupply hit when the dot-com bubble burst in 2000, though it was mitigated a bit when the entertainment industry locked into some deals when it rushed into production as a hedge against potential strikes by actors and writers. But that's all past, and demand should cause prices to steadily rise again.
John Tronson, a principal with Ramsey-Shilling Commercial Real Estate Services Inc., believes lease prices have hit rock bottom. "I think you'll start seeing rents go up dramatically over the next 12 months to 24 months.
Still, there is more specialty space set to come on the market. Infinity Broadcasting Inc. is poised to move its KFWB-AM (980) radio studio to 5670 Wilshire Blvd. from 6230 Yucca St. by the end of this year, a station spokeswoman said. Other Infinity-owned stations could be involved in the move.
Writing new chapter
The biggest story in Hollywood has been written by CIM Group Inc. The development and investment firm has been on a buying spree, and closed in the first quarter on its $201 million acquisition of the 645,000 square foot Hollywood & Highland complex and the adjoining 637-room Renaissance Hollywood Hotel from Trizec Properties Inc.
CIM has followed a formula of buying buildings, gutting, refurbishing and looking for new tenants, many of them national retailers and restaurants. In the first quarter, CIM also bought the building at 7046 Hollywood Blvd. with plans to convert the property at Hollywood Boulevard and Sycamore Drive into apartments with ground floor retail. At the Hollywood Galaxy, the firm closed down the AMC six-screen movie theater and has struck a deal to move fitness center Bodies in Motion Inc. into the 26,000-square-foot-space. It is also negotiating with a national pharmacy and two other retail tenants for leases at the spot.
In addition, CIM, owner of the TV Guide building at 6922 Hollywood Blvd., where the offices of Gemstar-TV Guide International Inc. are located, has started installing storefronts for a Hooters restaurant, a Coffee Bean & Tea Leaf, a Baja Fresh and a Jamba Juice. A 4,500-square-foot storefront remains vacant.
Not every project is a rehab. Construction has begun on part of a block-long mixed-use project on Hollywood Boulevard between Cherokee and Whitley avenues, where the principals said leases are being negotiated with a sushi restaurant, a local clothing retailer and an upscale lounge.
CIM isn't the only developer seeing opportunities to revitalize Hollywood.
In January, VNU Inc.'s Nielsen Entertainment consolidated three properties at the Sunset Media Tower, 6255 Sunset Blvd., near Vine St., according to David Pavell, director of facilities for VNU Inc.
The inventory of vacant office buildings is continuing to fall as developers convert them to condominiums. "How can you say the vacancy rate is up when buildings are being taken off the market?" Bonbright asked.
-The 60,000-square-foot home of KCOP (Channel 13), at 915 N. LaBrea Ave., was bought for $11 million by Bomel Management from Fox Corp. Ltd.
-CIM Group Inc. closed on its $201 million purchase of the 645,000-square-foot Hollywood & Highland complex and the adjoining 637-room Renaissance Hollywood Hotel from Trizec Properties Inc.
-Los Angeles Recording Workshop leased the 33,000-square-foot building at 6690 Sunset Blvd. in a one-year deal.
-Sunset Hilldale LLC purchased an office-over-retail building with a 70-car space parking lot for $7.5 million from Sunset LLP.
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