REAL ESTATE QUARTERLY - Wilshire Corridor
Conversions and Higher Rates Highlight Local Lease Activity
By MARGOT CARMICHAEL LESTER
The Miracle Mile/Park Mile section of the Wilshire Corridor, where vacancies tend to run higher than in the Wilshire Center submarket farther east, posted generally good results, as landlords raised their asking rents despite a slight rise in vacancies.
Average asking rates for Class A space rose to $2.14 per square foot from $2.09 in the first quarter and $2.05 in the year-ago period, according to Grubb & Ellis Co. Asking rates were the highest since 2002, when they hit $2.20 per foot.
Class B rates rose to $1.78 per square foot from $1.74 per square foot in the previous three months, reversing a four-quarter downward trend. In the second quarter of 2003, asking rents for Class B space averaged $1.94 per square foot.
"Most media and entertainment tenants in the market are willing to pay a little more to be in the better buildings, which is pushing Class A rents up," said Chris Runyen, vice president of Grubb & Ellis. "Also, when the market was down in 2000, rental rates for many of the 'A' buildings were dropped to regain interest in the market. Now that things have stabilized, the rents are going back up."
Landlords have been dropping their Class B rates in an attempt to capture tenants that are more economically driven, Runyen said.
Class A vacancies in the second quarter rose to 16.8 percent, from 16.3 percent in the first three months of the year and the 19 percent-plus rates recorded in the first half of 2003.
One area showing signs of activity: residential development.
Investors have been eyeing conversion opportunities from among the Wilshire Corridor's lower-performing office inventory. Two conversion projects are under way at 3810 Wilshire Blvd. in Wilshire Center, and to the west in Miracle Mile, on the top floors of 5670 Wilshire Blvd.
A couple of significant transactions in the second quarter occurred at 5670 Wilshire Blvd. Infinity Broadcasting leased the 60,000-square-foot space formerly occupied by Artistdirect Inc. in a 10-year, $20-million deal while Viacom Inc. took 35,000 square feet for 15 years at an unreported rate.
Elsewhere in the Miracle Mile/Park Mile, three deals were inked for unreported terms: Poly Language Institute relocated to 4,700 square feet at 4221 Wilshire Blvd. from 4201 Wilshire; Fox Television leased 35,000 square feet in Wilshire Courtyard at 5750 Wilshire Blvd.; and Rebel Entertainment Partners took 7,000 square feet, also in Wilshire Courtyard at 5700 Wilshire Blvd.
Investment activity was also heating up at the second quarter's close, said Bob Safai, director of Madison Partners. Oak Tree Capital sold 6222 Wilshire Blvd. to an individual investor for $165 per square foot, he said, and 6300 Wilshire is on the market in the $180- to $200-per-square-foot range, he said.
"These deals are indicative of nicer buildings getting premiums," said Mark Robinson, corporate managing director for Studley. "The low cost is an incentive to buy at below replacement costs."
With Class A asking rates staying well below the $1.50 mark, Wilshire Center caters to cost-conscious tenants such as government agencies and non-profits. In the second quarter, asking rates fell to $1.40 per square foot from $1.43 in the first quarter and were essentially unchanged from the year-ago second quarter.
Affordable rates lowered vacancies to 12.2 percent in the second quarter from 12.8 percent in the January-March period; vacancies have remained between 11 percent and 13 percent for seven consecutive quarters.
A lack of large contiguous spaces means there is little chance for a major tenant to move in or move out, limiting the vacancy swings, Runyen said.
One possible cloud: looming state budget cuts, which result in the loss of government tenants or tenants reliant on government funding.
"L.A. County has already started consolidating space, and they are one of the largest users in the area," said Mike Dunn, executive vice president of Charles Dunn Co. "The budget [cuts] could mean more consolidation for them. And if non-profits' funding is impacted, it could slow them down, too."
In the second quarter, net absorption (the amount of newly occupied space less space placed on the market) totaled 46,458 square feet, reversing a trend of negative net absorption in the first quarter.
Within the Wilshire Center submarket, there were several relocations in the second quarter.
Aviva Center moved to 14,620 square feet in Wilshire Collonade (3701 Wilshire Blvd.) from 3699 Wilshire, and Westwood College of Technology relocated into 42,000 square feet in Central Plaza at 3450 Wilshire Blvd., in a 10-year, $7.5-million deal.
Other lease transactions of note include the AIDS Project LA renewal of its 24,652-square-foot space at Paramount Plaza (3550 Wilshire Blvd.) and Total Cos.' renewal of its 12,160-square-foot office at 3600 Wilshire Blvd.
- Infinity Broadcasting leased 60,000 square feet in a 10-year, $20-million deal at 5670 Wilshire Blvd.
- Viacom Inc. took 35,000 square feet for 15 years at an unreported rate at 5670 Wilshire Blvd.
- Fox Television leased 35,000 square feet at 5750 Wilshire Blvd.
- Oak Tree Capital sold 6222 Wilshire Blvd.
- Aviva Center relocated to 14,620 square feet in Wilshire Collonade, at 3701 Wilshire Blvd., and Westwood College of Technology relocated to 42,000 square feet at 3450 Wilshire Blvd. in a 10-year, $7.5-million deal.
- AIDS Project LA renewed its 24,652-square-foot space at Paramount Plaza (3550 Wilshire Blvd.).
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