The Miracle Mile portion of the Wilshire Corridor, normally outpaced by the lower-priced Park Mile and Wilshire Center submarkets, took center stage in the fourth quarter.
Net absorption for Miracle Mile/Park Mile drove most of the shift, skyrocketing from negative 20,180 square feet at the start of 2004 to 147,891 square feet at the end of the year, according to Grubb & Ellis Co.
Vacancy rates for the submarket fell to 14.2 percent in the October-December period from 16.7 percent for the previous three months.
Much of the Miracle Mile/Park Mile space was taken up by entertainment companies relocating from Hollywood, West Hollywood and West L.A.
"With the influx of entertainment professionals into the Hancock Park residential community, landlords have seen entertainment office users move from their West Hollywood addresses to highrises in the Miracle Mile and Park Mile districts," noted Andrew Altman, an associate with Charles Dunn Co.
One example: WPT Enterprises Inc. inked a six-year lease for 16,000 square feet at the Wilshire Courtyard, 5700 Wilshire Blvd., in a $3 million deal. WPT, which develops poker tournaments for television, will consolidate and relocate from the Formosa Building, 1041 Formosa Ave., in Hollywood.
"Surprisingly, even smaller (2,500- to 5,000-square-foot) quality spaces are becoming difficult to identify," said Steve Salas, senior associate with CB Richard Ellis. "These markets are getting tight again and rates are slowly creeping up."
In Miracle Mile/Park Mile, average asking rates for Class-A space jumped to $2.26 per square foot at the end of 2004, compared with $2.10 a year earlier.
For the overall submarket, average asking rates for Class-A properties closed the year at $1.87 per square foot after rising from $1.76 a year ago.
Taking advantage of affordable rents, several tenants inked deals. The Fulfillment Fund picked up 13,811 square feet at 6100 Wilshire Blvd. for unreported terms and Commonwealth Bank leased 9,974 square feet at 5055 Wilshire Blvd. in a 10-year deal. Medical billing company Healthcare Management Partners leased 5,500 square feet at 6380 Wilshire Blvd. in a 3-year deal worth about $375,000. Nationwide Insurance leased 4,213 square feet at 5055 Wilshire for 63 months at about $550,000.
Declining sublease space forced direct leasing, pushing the Corridor's net absorption up from 33,843 square feet at year-end 2003 to 102,289 square feet by the end of 2004, according to Grubb & Ellis.
As for the Wilshire Center submarket, vacancy rates rose to 11.9 percent from 11.2 percent in the previous three months; they've been hovering around 12 percent for almost two years. Class-A asking rents reached $1.47 per square foot in the October-December period from $1.42 per square foot in the year-earlier period.
More affordable rents continue to make Wilshire Center suitable for government and service agencies, and L.A. County remains the largest user of office space in the market.
But with tenants moving from one building to another within the same market, net absorption took a hit, dropping to negative 45,602 square feet in the fourth quarter from 68,967 square feet for the previous three months (the former space was listed as vacant before the new space could be listed as filled). It began the year at negative 12,855 square feet.
The largest deals were renewals. Work Source California re-upped for 24,871 square feet at Paramount Plaza, 3550 Wilshire Blvd. Terms were not disclosed, but brokers estimated that the deal was priced around $1.35 per square foot. The Achievement Council renewed for 6,000 square feet at 3460 Wilshire Blvd. in a 3-year deal.
"The improving general economic environment should sustain the demand for leasable space, especially from the small business sector," Altman said. "In addition, new retail developments at the Vermont/Wilshire and Western/Wilshire metro stations, along with the proposed Equitable Plaza retail development at Sixth and Mariposa, will add a boost to the area's retail amenities."
Declining vacancies and increasing rents helped keep investor interest high. So did financial concerns. "Interest rates are starting to climb, causing owners to consider disposition and investors to consider a last opportunity to buy," said Chris Runyen, a vice president with Grubb & Ellis.
In October, 6300 Wilshire Associates sold its 6300 Wilshire Blvd. to Tishman Speyer for $75 million. The 373,428-square-foot building was approximately 89 percent leased at the time.
J.H. Snyder Co. and Goldrich & Kest Industries LLC raised asking rates at 5670 Wilshire Blvd. in the third quarter as they sought to entice a buyer for the property. The building was expected to move for as much as $110 million, but Arden Realty is under contract to acquire it for about $90 million. The building is 95 percent leased.
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