Vacancy rates in the Hollywood/West Hollywood submarket fell again in the first quarter, as demand picked up and the amount of available office space shrunk.
Net absorption totaled 128,408 square feet, knocking the vacancy rate down to 8.3 percent from 12 percent in the preceding three months, according to Grubb & Ellis Co. First quarter vacancies were down sharply from nearly 22 percent a year earlier.
"We are amazed at the momentum that's been generated in the Hollywood market," said John Tronson, a principal with Ramsey-Schilling Co. "We haven't seen the office market like this since the dot-com frenzy."
With the recent boom in new mixed-use and residential developments in Hollywood, several older office buildings have already been converted to apartments, condominiums or stores, taking supply off the market. Hollywood has no new office buildings under construction, but it's in no danger yet of running out.
Some Hollywood office towers have received major renovations over the past few years, including the seven-story Hollywood Plaza building at the corner of Hollywood Boulevard and McCadden Place. Developer Mehdi Bolour has redesigned the fa & #231;ade and interior, bumping the building's office space up to Class-A, said Kerry Morrison, executive director of the Hollywood Entertainment District.
"There's also a lot of unconventional office space in Hollywood above retailers or tucked away in smaller buildings," said Morrison, noting that those spaces are often filled with tenants in the entertainment industry or other creative fields.
A mixed-use project was the largest real estate transaction in Hollywood during the January-March period.
Developer Larry Bond and partner Canyon Johnson Realty Advisors sold their 625,000-square-foot mixed-use project Sunset + Vine, located at 1555 Vine St., for around $165 million. SSR Realty Advisors Inc., a pension advisor for the California Public Employees Retirement System, bought the complex, which includes 300 loft-style apartments above 87,000 square feet of retail.
While asking rents for Class-A office space in Hollywood remained constant at $2.45 over the past two quarters, they were up from $2.28 a foot in the year-ago first quarter. Class-B rents fell 6 cents from the fourth quarter, to $2.11 per square foot, but were up from $1.94 in the year-ago period.
Tronson said he expects to see a significant office rent spike in Hollywood over the next year.
Blake Mirkin, senior vice president of CB Richard Ellis, said Hollywood office rents first began increasing in the more creative office spaces, and more recently in the previously sluggish "traditional" office buildings as well.
He said he sees no slowdown in the conversion of office space to residential, noting that, "the city is truly in favor of adding residences. It's the darling of real estate right now."
In another large mixed-use deal last quarter, the Nederlander family signed a lease with Clarett Hollywood LLC, a partnership of New York-based developer Clarett Group and Prudential Real Estate Investors, to develop a $300 million residential and retail project along Hollywood Boulevard, between Argyle Avenue and Gower Street.
The project will stretch eastward from the Nederlander-owned Art Deco icon, the Pantages Theater. The deal was considered a watershed in Hollywood because it was the largest in recent history done completely with private financing, requiring no public incentives.
Next door to the Nederlander site, Gatehouse Capital Corp. and Legacy Partners Inc. are nearing final approvals to develop a $325 million complex of housing and retail anchored by a 200-room W Hotel.
In West Hollywood, where office space is even scarcer, Stone Canyon Entertainment leased 7,400 square feet of office space from Sunset Millennium Holdings.
At the Pacific Design Center, Thomas Lavin, a high-end furniture showroom, moved from its Beverly Boulevard location to a 10,000-square-foot space. Home fabrics and furniture design house and multi-line showroom Holly Hunt also moved into the Design Center, taking over 17,000 square feet.
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