The Wilshire Corridor is a tale of two neighborhoods.
Stretching from west of downtown to Beverly Hills, the area saw its office vacancy rate drop more than a point, to 9.2 percent in the third quarter.
But that doesn't necessarily translate into high leasing rates. Wilshire Corridor properties had average asking rates of $2.03 per square foot for Class-A space and $1.44 for Class-B. Only the South Bay posted lower figures, according to Grubb & Ellis Co.
While the Miracle Mile/Park Mile segment of the area is benefiting from the tighter market in nearby Beverly Hills and surrounding neighborhoods, the Wilshire Center area closer to downtown continues to lag, even though its vacancy rate is 8 percent. Packed with small professional offices, government agencies and other low-rent tenants, its asking rents inched up just a penny to $1.47 the lowest in the county dragging down the Miracle Mile's overall $2.34 figure.
"(Miracle Mile/Park Mile) is very desirable now because of the Grove and the residential development," says Dick Schell of Colliers-Seeley International. "It's looking very good."
The biggest newsmaker for the area was CNN, which is negotiating to relocate its Hollywood bureau to 6500 Wilshire Blvd. in a 40,000-square-foot, 15-year deal at an average rent of about $3 per square foot. Also, the public relations and marketing firm Laufer Green Isaac Inc. leased 5,500 square feet at 4221 Wilshire Blvd. for five years at undisclosed terms, while Petry Television took 14,000 square feet lease at 6380 Wilshire Blvd. at an unreported rate.
These deals helped the area absorb nearly 112,000 square feet of space in the quarter, continuing a trend that began early last year as tenants have moved into the neighborhood. However, that has not resulted in many properties changing hands as current landowners hold out for a bigger rise in leasing rates.
"Miracle Mile has experienced some investor activity, but most of the landlords are looking to hold properties and slowly raise rental rates as the market improves," said Chris Runyen, senior managing director for Charles Dunn Co. Inc.
The largest sale was at Wilshire Courtyard, where Stockbridge Capital Partners Inc. unloaded its roughly 95 percent stake for $360 million to German fund manager RREEF Funds LLC. McCarthy Cook & Co., the minority owner of both buildings there, retains its interest and continues managing the offices.
The complex at 5700-5750 Wilshire Blvd. also saw mortgage lender ResMAE take 11,072 square feet, with Miramax Film Corp. said to be in negotiations for 10,000 to 15,000 square feet there as well.
Wilshire Dunsmuir Co. LLC sold the landmark Desmond's building at 5500 Wilshire Blvd to Legacy Partners for an undisclosed amount. Legacy will feature the tower as part of a high-end mixed-use project with residential development going up on a surface parking lot.
If market dynamics to the West and North continue to work in its favor, "Miracle Mile will be the next market to really pop," Schell said.
In the Wilshire Center area, David Lee's Jamison Properties Inc., the area's largest property owner, purchased a 220,000-square-foot office building at 3325 Wilshire Blvd. The company paid almost $15 million to an anonymous seller for the building, which is across from the former Ambassador Hotel and is 63 percent occupied.
Jamison now owns 25 of the area's 32 office buildings and brokers expect Lee to push up the lagging leasing rates. Rates for Class-A buildings have been in the $1.40 per square foot range for more than two years, while Class-B rates have stayed at between $1.27 and $1.30 per square foot for the same period.
"Dr. Lee hasn't bumped rates in a while, but it's inevitable that he will," said Nathan Pellow, vice president at Colliers-Seeley International. "And it will be interesting to see what happens with vacancies at that point."
A rate increase could send some tenants scurrying. Those wanting to stay in close to the area might head to Hollywood. Those looking for similar rents might head south to Century Blvd. and LAX.
The vacancy rate fell to 8 percent, down from 9.7 percent at mid-year. Net absorption was 126,620 square feet in the third quarter, up from 30,122 square feet in the previous three months and 93,724 square feet in the January-March period.
The increased occupancy is generally attributed to existing tenant expansions. And that's unlikely to change with so little space on the market. "We don't see any big new blood going in there," said Phillip Sample, senior vice president for Grubb & Ellis.
That can be good news for landlords because it lowers construction costs, although that may not last for long.
The market could pick up if residential conversions spur additional commercial development.
"In Wilshire Center, there are many residential developments planned and under construction," Runyen said. "This is helping to boost interest in the office market and will increase the demand for retail space as well."
The most celebrated of these projects is on the site of Perino's restaurant. Carey & Kutay Development Group LLC has started developing the 47-unit, $24-million Perino Apartments at Wilshire Blvd. and Norton Ave.
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