Mountainous Divide Separates Stronger Markets From Weaker

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Mountainous Divide Separates Stronger Markets From Weaker

By DANNY KING

Staff Reporter

That sound you heard last month was the other shoe dropping in the county’s commercial real estate market.

Through the first nine months of 2003, a number of monster deals were signed for new digs in markets like Santa Monica, Culver City and Century City. As the year came to an end, those deals became reality, leaving empty spaces in their wake and reversing a yearlong decline in the countywide office vacancy rate.

The county registered negative net absorption of 516,000 square feet in the October-December quarter, all but wiping out 569,000 square feet taken off the market in the previous period. The market still managed to close the year on an up note, with more than 1 million square feet taken out of available inventory.

The countywide vacancy rate in the last quarter was 16.2 percent, up from 15.8 percent for the third quarter though down from 16.7 percent for the year-earlier period.

The vacancy hike is only a blip in light of the high positive net absorption, said Chris DuMont, senior vice president at Grubb & Ellis Co.

“If we see negative absorption in the first quarter and further erosion from last year, it’s something to worry about,” said DuMont. “We’re still positive on the year.”

In a market with a base of 177.7 million square feet of office space, not every pocket fared well. West Los Angeles and the South Bay experienced substantial shrinkage in tenants, and the two areas returned a combined 877,000 square feet to the market. Century City, Santa Monica, Marina/Culver City and the 190th Street Corridor each had negative absorption figures of greater than 160,000 square feet.

On the Westside, it was a case of trading spaces. Most of Century City’s negative absorption of almost 288,000 square feet came as International Lease Finance Corp. left 75,000 square feet at SunAmerica Center in favor of the new MGM Tower and HBO moved from more than 100,000 square feet at Century Plaza Towers into Santa Monica’s Colorado Center.

Similarly, advertising agency RPA (formerly Rubin Postaer and Associates) moved in the fourth quarter to Colorado Center and Pepperdine University’s Graziadio School of Business and Management moved into Howard Hughes Center in deals signed during the third quarter. The moves from downtown Santa Monica and Culver City, respectively, caused a jump in fourth-quarter vacancy rates in both markets.

The South Bay fared little better, putting 94,000 square feet back on the market for the fourth quarter alone and returning more than 722,000 square feet for the year. The hardest hit submarket was the 190th Street Corridor.

Toyota Motor North America moved out of 200,000 square feet at 20101 Hamilton Ave. in favor of space at its own campus on Western Avenue in Torrance, pushing the submarket’s vacancy rate up 6.7 percent, to 16.9 percent.

The brightest spot on the south side of the hill was downtown L.A., where almost 106,000 square feet were absorbed and vacancies slipped to 19.6 percent from 19.9 percent in the earlier quarter.

Downtown also saw the county’s largest deal of the last three months, when City National Bank signed a 15-year lease for 310,000 square feet being vacated by Bank of America in Arco Plaza’s south tower.

Beacon Capital Partners LLC’s $175 million purchase of the 891,000-square-foot Citibank Center at 444 S. Flower St. and Cargill Inc.’s $125 million deal to buy MCI Center at Seventh and Flower streets capped the year.

The North Los Angeles market absorbed nearly 196,000 square feet, mostly in the West Valley. ATK Missile Systems Co. took about 74,000 square feet at Lennar Partners’ 179,000-square-foot third phase of LNR Warner Center in Woodland Hills, which was completed during the quarter, while LifeCare Assurance Co. took about 50,000 square feet at Warner Center Tower I.

As a result, the West Valley chalked up a county-high 182,000 square feet in absorption and its vacancy rate was 14.6 percent for the quarter, compared with 14.5 percent in the July-September period. Vacancies were up slightly with the delivery of the LNR Warner Center Phase III but were well below the 17.2 percent for the year-earlier quarter.

“Health care, insurance and mortgage and title companies seem to be out there looking around,” said David Solomon, vice president at CB Richard Ellis. “Those are smaller transactions but there are a lot of them.”

On the industrial front, countywide vacancies were up for the quarter as 4 million square feet of new buildings hit the market. The vacancy rate was 3.2 percent, up from 3 percent in the third quarter, though still better than the 4 percent for the year-earlier period.

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