Gains in Santa Monica, West L.A. and the Culver City/Marina markets helped pull Westside vacancies down to 15.5 percent, according to Grubb & Ellis Co., more than a point lower than the April-June quarter.
Third quarter activity was especially brisk in the submarket's Class-A buildings, where 13 significant new leases and renewals contributed to an increase in net absorption of almost 400,000 square feet.
The overall performance masked declines in two of the submarket's traditionally strong pockets: Beverly Hills, where the vacancy rate rose to 13.4 percent from 11.9 percent in the prior period, and Century City, where the vacancy rate hit 18.7 percent, a percentage point above the second-quarter rate and 3.3 percent higher than the year-ago period.
The reduction in available space did little to stem an ongoing decline in average asking rates, which stood at $2.66 for the July-September period from $2.68 in the second quarter.
The biggest declines were in Beverly Hills and Century City, where Class-A asking rates have skidded 13 cents in the last year.
Even with Century City's asking rents at $3.01 per foot per month, down from $3.14 in the year-earlier quarter, the address is so desirable that third-quarter asking rates for Class-B space $2.87 per square foot are higher than the average asking rates for Class-A space in five other Westside office enclaves.
But the market remains in flux. Though the recently opened MGM Tower added a great deal of space to the market, its namesake tenant is in the midst of being acquired by Sony Corp. At the same time, the expected influx of entertainment companies after talent agency Creative Artists Agency agreed to anchor a new tower at 2000 Avenue of the Stars in a $150 million deal earlier this year has failed to materialize.
"The prediction of a dramatic inflow is premature," said Neil Resnick, senior vice president and director at Grubb & Ellis.
Asking rents in Santa Monica dropped, perhaps spurring a decline in vacancies to 13.9 percent from the 16.3 percent reported in the previous three months.
"Santa Monica languished for so long after the dot-com bust," said Eric Olofson, a managing broker with Cushman & Wakefield Inc. "As the economy gradually improves, what made it hot in the first place is prompting tenants to focus on quality of life again."
In one of the largest deals in the county, Equity Office Properties Trust and pension fund TIAA-CREF purchased the 1.1-million-square-foot Colorado Center for $443.6 million from Tishman Speyer Properties Inc. about $75 million more than Tishman paid for it in 2000.
Marina del Rey/Culver City
Long-suffering Marina del Rey/Culver City saw a favorable turn in the third quarter, reversing a yearlong downward trend.
It was the only Westside segment to record an increase in Class-A asking rates, as landlords looked ahead to increased demand going into the final quarter. Vacancies fell to 14 percent, returning to the year-earlier level after spiking to 17.2 percent in the April-June quarter.
"As companies seek larger blocks of creative space that aren't as expensive as Santa Monica, they're now looking at Culver City and Marina del Rey," said David Wilson, president of Lee & Associates.
The impetus, he said, was Electronic Arts' deal at Playa Vista earlier in the year. "They really pulled the rabbit out of the hat with that one," said Blake Mirkin, senior vice president of CB Richard Ellis. "That deal added instant credibility to the market, especially for creative services tenants."
The increased momentum enticed Evergreen Development LLC to purchase Marina Corporate Centre, the 88,125-square-foot office building at 12665 Jefferson Blvd. across from Playa Vista. Summit Commercial got $26 million for the property.
Two notable lease transactions were inked, as well. The state of California Board of Equalization leased 34,300 square feet for 96 months at 5901 Green Valley Circle. First Advantage Corp. leased 10,695 square feet at 600 Corporate Pointe in Culver City for 72 months at an effective rate of $1.83 per square foot.
Despite absorption that took 61,800 square feet off the market, Westwood continued to sport the highest vacancy rate on the Westside.
The market has yet to recover from the departure of Saban Capital Group Inc. from 300,000 square feet in 2003. And the inventory competes directly with new buildings in Century City and Santa Monica.
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