Lower Asking Rents Stave Off Increase in Vacancy Rates
By MARGOT CARMICHAEL LESTER
Vacancy rates across West L.A. held their own in the first quarter of 2004 and the submarket was even able to absorb more than 200,000 square feet in large part because landlords fueled more activity by lowering rents.
The aggregate vacancy rate across the West Los Angeles submarket was 17 percent in the January-March quarter, equal to the previous three months and a point-and-a-half above the year-earlier quarter.
"There has never been a better time to create a horse race for their tenancy," said Mark Robinson, corporate managing director for Studley. "Tenants need to know that they will only get the best deal by making sure that at least two landlords have the option of dropping out of competition for their tenancy."
Grubb & Ellis Co. figures show asking rates have dropped to $2.70 per square foot from $2.76 in the quarter earlier and $2.84 a year ago.
"Some of the 'off-sheet' concessions such as lease assumptions, free rent, paid furnishings, etc. don't always show up on the effective rental rate," Robinson said. As for the high vacancy rate, he said, "the bottom of the market may feel firmer, but it is still the bottom."
Positive signs were seen in net absorption (the amount of space newly occupied less the amount newly available), where 217,000 square feet were taken off the entire Westside market, compared with 782,948 square feet put back on in fourth quarter of 2003.
"The balance of West Los Angeles doesn't appear to have tightened in any way in the first quarter," said Neil Resnick, a Grubb & Ellis senior vice president working the Westside. "Concessions remain status quo and in some cases landlords are reaching even deeper to attract credit-worthy tenants or tenants who will draw other users to the building."
Of the nine Westside office markets tracked by Grubb & Ellis, five saw modest tightening in vacancies, one held essentially even and the balance bumped up.
Westwood and Century City both saw a 1.1 percent decline in their vacancies rates, the strongest performances on the Westside.
In Westwood, bountiful concessions, rents averaging $2.82 in the January-March quarter and the willingness of companies to relocate kept the submarket busy. "Westwood is very aggressive maybe the most aggressive market in the city," said Marc Lebowitz, vice president at First Property Realty Corp.
But despite improving from the 24 percent vacancy recorded in the October-December period, the submarket's 22.9 percent level is still among the highest in the region.
In Century City, the vacancy rate dropped to 17.4 percent. Average asking rates fell 7 cents in the same period, to $3.11, and net absorption was firmly positive at 144,000 square feet, according to Grubb & Ellis.
(The firm's figures include Creative Artists Agency's 15-year, $150-million lease for 180,000 square feet at the proposed 2000 Avenue of the Stars signed in the quarter. The agency will vacate its 90,000 square feet in Beverly Hills when the $280 million, 790,000-square-foot mixed-use project is completed in late 2006.)
Two deals at 1901 Avenue of the Stars also helped the swing: Law firm Knobbe Martens Olson & Bear LLP, leased 10,000 square feet with a reported start rate of $2.25 per square foot; Sheppard Mullin Richter & Hampton LLP took 26,000 square feet in a 10-year lease worth an estimated $8.3 million.
Brentwood, another pocket experiencing a tightening vacancy rate, saw its activity aided by declining asking rents. Average Class-A rates skidded to $2.58 in the first quarter from a high of $2.82 at the start of 2003.
Marina del Rey/Culver City
In Culver City, vacancy rates hovered in the mid-16 percent range, perhaps held steady by rapidly falling asking rents. The going rate for Class-A space was $2.13 per square foot, according to Grubb & Ellis, a full 25 cents lower than in the October-December period and year-ago quarter.
"With the high vacancy rate in the Bs over the last few quarters, landlords in the As felt that they didn't have to compete with them," Robinson said. But, he added, recent deals for Class-B space "put pressure on the big boys to step up or down as the case may be."
The most notable lease deal, valued at $39 million, involved childcare service provider Crystal Stairs, which took 99,326 square feet in Wateridge in West L.A.
The most significant investment deal saw Sony Pictures Entertainment selling Culver Studios for $125 million to Studio City Los Angeles, an investor group including Lehman Bros. Pacific Coast Capital Partners and Pacifica Ventures. The 450,000-square-foot complex includes 14 sound stages, a screening room and a commissary.
In Santa Monica, the vacancy rate remained essentially unchanged at 17.3 percent.
- Crystal Stairs took 99,326 square feet in Wateridge at 5035 W. Slauson Ave. in Marina del Rey in a $39 million deal. - Sony Pictures Entertainment sold Culver Studios for $125 million to Studio City Los Angeles. - Creative Artists Agency signed a 15-year, $150 million lease for 180,000 square feet at the proposed 2000 Avenue of the Stars in Century City. - Rand Corp. inked a 10-year deal, $20 million lease for 37,000 square feet at 1733 Ocean Ave. in Santa Monica. - William Chang sold 520 Broadway to Palisades Associates LLC for $31.6 million.
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