Third Time No Charm as New Dip Buffets Ailing Market
MARGOT CARMICHAEL LESTER
Westside lease rates reversed a yearlong downward slide in the fourth quarter, rising slightly to $2.76 per square foot from $2.74 in the previous three months, according to Grubb & Ellis Co.
Still, that's below the $2.86 per foot rate reported in the fourth quarter of 2002, and vacancy rates increased to 17 percent in the fourth quarter from 15.4 percent in the previous quarter and 15.8 percent in the year-earlier quarter.
What's more, nearly 800,000 square feet more of space became available than was absorbed by the market during the fourth quarter.
"We're experiencing a triple dip," said Lee Shapiro, a director of Charles Dunn Co. "Starting 10 quarters ago there was an initial decline in asking rates with vacancies increasing. Then there was another plunge ending in the summer of '03. There was some stability/buoyancy for a while, then the third dip started in the fall with vacancies rising and rents declining."
In Brentwood, a submarket that's done well all year, two landlords struck deals that illustrated the downward pressure on rents.
"Jamison Properties bought 11620 Wilshire and dropped rents," said Darren Senger, research analyst for Grubb & Ellis. "Jamison prefers full buildings with lower rents per foot to half-full buildings with higher rents."
Arden Realty Inc. also contributed to the downward trend, dropping asking rents at 11601 Wilshire Blvd. by 66 cents per square foot, largely to make up for the loss of two large tenants. Ad agencies DDB Needham and Suissa Miller both left the building as part of consolidations by their parent companies. Senger estimated they left about 90,000 square feet vacant.
As a result, Brentwood's vacancy rate shot up to 14.5 percent in the fourth quarter from 10.4 percent in the July-September period. At $2.63, asking rents in the submarket were 28 cents lower than the year-ago period.
In the Century City submarket, vacancies rose to 18.5 percent from 15.4 percent in the third and 11.7 percent in the year-ago fourth quarter. Nevertheless, Class-A asking rents rose slightly to $3.18 per square foot from $3.14 in the third quarter.
"Century City landlords try to keep asking rents up even when effective rents are down," Senger said. "It looks more prestigious that way."
In the submarket, net absorption was a negative 287,808 square feet in the fourth quarter.
Among the deals inked during the quarter, Citigroup unit Smith Barney agreed to relocate to 2121 Avenue of the Stars in a 10-year, 19,000-square-foot deal at $3.70 per square foot. The firm had been at Watt Plaza for 20 years.
Northrop Grumman Corp. renewed 131,140 square feet and expanded into another 60,989 square feet at Northrop Plaza II (1840 Century Park East) at $2.89 per square foot for three years.
Another poor-performing submarket was Marina del Rey/Culver City. There, vacancy rates rose to 16.8 percent from 14 percent in the third quarter, and absorption was a negative 161,923 square feet in the fourth quarter. Much of the shift is attributable to the Pepperdine University's Graziadio School of Business & Management's move out of 87,000 square feet at 400 Corporate Pointe. It relocated to 112,000 square feet at Howard Hughes Center in the same submarket, but that tenancy was recorded earlier in the year.
Shapiro thinks the Westside is poised to rebound in 2004.
"Demand for medical space has outstripped supply, so doctors are creeping over into traditional office space," he said. Health organizations with high patient volume are required by the city to occupy buildings with higher parking ratios, but lower-traffic groups are exempt.
"Psychiatrists and psychologists, chiropractors and holistic health providers can be considered 'general office' users in city regulations," he said.
Despite the lackluster leasing figures, the Westside continued to be a robust market for buyers and sellers.
Douglas Emmett & Co. sold two Beverly Hills properties. IRP Beverly Hills Associates LLC purchased the 84,734-square-foot building at 9440 Santa Monica Blvd. for $21.8 million. The building was 96 percent leased at sale. Emmett also sold the 98-percent leased 9777 Wilshire Blvd. to Maxxam Enterprises for $35.4 million.
Beacon Capital Partners LLC and CarrAmerica Realty Corp. purchased the 21-story, 475,000-square-foot 1888 Century Park East from Bentall Capital for $119 million. The building was 65 percent leased at sale.
In Westwood, Fifield Cos. picked up the "Pumpkin Patch" site at Wilshire Boulevard and Comstock Avenue from George Rosenthal for an estimated $13 million. Fifield plans to develop a 21-story condo. In Santa Monica, the Pick Family Trust sold 2719 Wilshire Blvd. for $2.4 million to 2719 Wilshire LLC. The property is 36 percent leased.
- Apartment Investment and Management Co. leased 20,000 square feet at 6100 Center Drive at Howard Hughes Center for about $3.3 million over 66 months.
-Smith Barney leased 19,000 square feet at 2121 Avenue of the Stars in a 10-year deal at $3.70 per square foot.
- Northrop Grumman Corp. renewed 131,140 square feet and expanded on another 60,989 square feet at Northrop Plaza II in Century City.
- Douglas Emmett & Co. sold 9440 Santa Monica Blvd. for $21.8 million to IRP Beverly Hills Associates LLC and 9777 Wilshire Blvd. to Maxxam Enterprises for $35.4 million.
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