Vacancy rates continued to inch downward throughout the Wilshire Corridor during the first quarter. But a tightening market only translated into slightly higher asking rents in the Miracle Mile/Park Mile section, while the Wilshire Center submarket closer to downtown L.A. saw rents fall.
In Miracle Mile and Park Mile, sublease space evaporated and direct leasing allowed landlords to keep prices relatively high.
Vacancy rates fell to 13.7 percent in the January-March period from 14.2 percent in the previous three months and 16.3 percent in the year-ago first quarter, according to Grubb & Ellis Co.
Meanwhile, asking rents for Class-A space rose slightly to $2.27 a foot from $2.26 in the fourth quarter and $2.09 in the year-ago first quarter.
"As the Westside continues to tighten, tenants find the least expensive alternatives and most value in Miracle Mile," said Rosey Miller, senior director with Cushman & Wakefield.
High asking rates in Century City and a lack of premier space in Hollywood compelled some tenants to consider Miracle Mile's top-tier buildings as an affordable alternative, said Guy Eisner, a broker with Grubb & Ellis.
Miracle Mile's nicer inventory of Class-B space also draws tenants from surrounding markets who want quality space and amenities at a lower price. "In previous quarters, major tenants were grabbing subleases which kept available inventory pretty static," Eisner said. With most of that space leased up, he said, larger tenants must work directly with landlords to broker deals.
The most significant transaction of the quarter was Getty Images' lease of 21,817 square feet at 6300 Wilshire Blvd. for 10 years at $7 million. The company relocated from Santa Monica's Water Garden and will attempt to sublease its space there.
High rents and low vacancy also made Miracle Mile/Park Mile attractive to investors. "Rising interest rates are pushing investors and owner-users to make purchases now, rather than waiting for the right deal," said Chris Runyen, a vice president at Grubb & Ellis.
In the most notable investment deal, Arden Realty Inc. picked up its third building in the area at the end of the first quarter, buying 5670 Wilshire Blvd. for $93 million from JH Snyder Co. The Class-A property is 92 percent leased to major tenants including Singapore Airlines and Viacom Inc.'s Infinity Broadcasting unit.
In the stretch of Wilshire extending to the east, lease activity slowed for the second quarter in a row as low vacancies and increased competition from surrounding markets kept deals to a minimum.
Asking rents for Class-A property fell to $1.43 a square foot in the first quarter from $1.47 in the previous three months, and were unchanged from the year-ago period.
Meanwhile, vacancies fell to 10.1 percent from 11.9 percent in the fourth quarter and 12.8 percent in the year-ago first quarter, as existing tenants took advantage of lower rates to expand. Many buildings are occupied at rates closer to 95 percent, Runyen said; most of the existing vacancies are in a handful of larger projects.
Among the few significant leases, the Achievement Council took 6,000 square feet for eight years at 3460 Wilshire Blvd., with terms undisclosed. Two leases were signed by undisclosed tenants at 639 South New Hampshire Ave.: A medical office took 10,500 square feet on the second floor, and a school took 4,000 square feet on the third floor.
Despite lower rents, a net 81,539 square feet of space was absorbed in the first quarter, compared with negative net absorption of 46,602 square feet in the fourth quarter.
"Many bulk-space users have left mid-Wilshire and those larger blocks are being absorbed by smaller tenants," said Rob Waller, first vice president for CB Richard Ellis Group Inc.
Many of Wilshire Center's buildings feature small footprints that are attractive to small business owners and offshore companies without a lot of staff, Waller said.
Long-term growth in the market, which had vacancy rates at 35 percent or more less than a decade ago, continues to draw investors.
Ago Investments picked up the 125,000-square-foot 2600 Wilshire Blvd. building for $15 million from the Shidler Group. And a partnership of Korean-American investors is lined up to purchase the Wiltern Theatre from Hertz Investment Group. The transaction includes the auditorium, retail space and a 59,000-square-foot office tower.
"These submarkets will do well in the second quarter and for the remainder of the year, as surrounding markets like Hollywood and Downtown reduce their office inventory and raise rents accordingly," Runyen predicted.
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