Vacancy levels in the Hollywood/West Hollywood submarket were driven down in the fourth quarter as older office buildings continue conversions to condominiums and apartments.
The conversions have also pushed up rents on the office space still available. Asking rates for space in Class-A buildings were $2.45 in the October-December period, up from $2.27 in the third quarter and $2.35 in the fourth quarter of 2003, according to Grubb & Ellis Co.
The vacancy rate for the three months ended Dec. 31 was 12 percent, up from 11.5 percent in the third quarter but lower than the 19.3 percent in the fourth quarter of 2003.
"Approximately 450,000 square feet of office space was recently removed from the market and converted into multi-unit housing," said Christopher Bonbright, a principal at Ramsey-Shilling Commercial Real Estate Services. "There's a strong demand for office space and a declining supply. And the office space out there is being rapidly absorbed, so tenants are going to be fighting for what's left. I'm really looking for a rent spike in the next 12 months."
Among the office properties now off the market is the 180,000-square-foot Hollywood Vine Plaza building that Meringoff Equities Inc., sold in June 2004 to Kor Group, which is expected to convert the aging office space to residential units in June 2005.
Also in that area, residential conversions include Gilmore & Associates LLC and Paladin Realty Partners' Hollywood Equitable building, 6380 Hollywood Blvd., which will be converted into 60 condominiums. There's also Sunset and Vine tower, part of which CIM Group plans to convert.
"When buildings like this get converted, we have to terminate all the leases, and those tenants are all out looking for space. It puts upward pressure on rents," said Rob Langer, a managing partner at Meringoff Equities.
Grace Entertainment Marketing leased 12,500 square feet of creative warehouse, office and loft space for $1.55 per square foot as the single tenant in the 25,000-square-foot-building at 937 Citrus Ave.
Topping the largest transactions was the $110-million December sale of the 17-acre Sunset-Gower Studios by Pick-Vanoff Co. to private equity firm Global Innovation Partners. The Menlo Park-based firm manages a $526 million investment fund for CB Richard Ellis Investors and the California Public Employees Retirement System.
CIM purchased the 85,000-square-foot building at 1800 N. Highland Ave., which houses the American Cinematheque theater, and the adjacent 12,500-square-foot vacant lot for $15 million.
Smaller media and entertainment companies accounted for much of the leasing activity in the quarter, led by the Kitchen Academy's lease of the 20,000-square-foot space on the ground floor of the ArcLight Cinerama Dome Entertainment Center at 6350 Sunset. The cooking school, a part of the California School of Culinary Arts in Pasadena, will feature glassed-in classrooms and a lobby visible from the movie theater courtyard, according to Tim Bower, first vice president of CB Richard Ellis, who represented the landlord.
At Asset Management Consultants Inc.'s 72,000-square-foot building at 6725 Sunset Blvd., Ramsey-Shilling signed smaller leases with a handful of companies, including an office for Chicago-based media research firm Bacon's Information Inc. and online music portal Music.com totaling 21,180 square feet. That leaves the building 93 percent occupied.
The net absorption rate the amount of newly leased space minus newly vacated space was negative 19,500 square feet in the fourth quarter of 2004. That's a sharp shift from the positive 286,746 square feet absorbed in the third quarter, largely representing a single 140,000-square-foot space leased by Interpublic Group of Cos. in West Hollywood's Pacific Design Center.
J.C. Casillas, research services manager for L.A. County at Grubb & Ellis, said the negative net absorption rate could have been caused by just a few small clients moving out during the quarter. More significant, Casillas said, is the cumulative 267,746-square-foot net absorption rate for the submarket for all of 2004.
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