The office space squeeze play is still on in the Wilshire Corridor, and the rents are on the rise.
For the third quarter in a row, landlords in the Wilshire Corridor which includes Wilshire Center, the Miracle Mile and Park Mile areas reported single-digit vacancy. The first quarter of the year closed at 8.8 percent, one of the lowest submarket vacancy rates in Los Angeles County.
The asking price for Class A space has risen by 16 cents from year-end to $2.17 per square foot, according to figures from Grubb & Ellis Co. Office space at 5670 Wilshire Blvd. one of the buildings included in Trizec Properties Inc.'s $1.63 billion purchase of 13 buildings from Arden Realty Inc. is going for $2.45 per square foot.
But the long-term outlook for landlords is mixed, according to area brokers. Some are bullish, but others worry that a shortage of space and higher prices, plus traditional market cycles, could slow the flow of cash into landlords' pockets. And everyone agrees that the new tax laws will pinch both landlords and tenants.
Miracle Mile/Park Mile
"In my opinion, Miracle Mile is the best market to be in for owners in 2006," said Richard Schnell, senior vice president with Colliers International. "They can feed off the buildup in the Santa Monica, Brentwood and Westwood marketplaces, and there's a real draw for Hollywood and West Hollywood clients, too. It's on fire."
Vacancies continued to drop in the area, from 19.2 percent in the first quarter of 2003 to 9.1 percent in the same quarter of 2006. Absorption remained positive at 62,387 square feet, far better than the negative 61,862 square feet recorded in the opening period of 2003.
Only one deal of note was recorded in the first quarter. Securities brokerage and asset manager ML Stern & Co. LLC re-upped at 8350 Wilshire Blvd. for 10 years in a 27,000-square-foot, $8.5 million deal.
Low vacancy will raise rates, but the "Arden effect" in which the real estate comps across the region were lifted by General Electric Co.'s $4.8 billion purchase of Arden Realty Inc.'s portfolio is the most likely factor behind the 26-cent first-quarter increase in average asking rates for Class A space, brokers say. Even Class B landlords are getting into the act, raising rates 6 cents to $1.89 per square foot.
"The tide raises everything," said Guy Eisner, associate vice president with Grubb & Ellis. "When the Class A landlords start raising rents, the B and C landlords follow."
RREEF Funds LLC, owner of Wilshire Courtyard, is offering the still-vacant Spelling Entertainment space at $3.10 per square foot, brokers say.
"There's 100,000 square feet available at 5900 Wilshire Blvd. at rents substantially below Santa Monica's," said Schnell. "They're asking $2.75 to $3.00 per square foot."
But that might not be a bargain, thanks to Proposition 13, which links property taxes to transaction values. "Tenants up for renewals or looking at new space are going to be shell-shocked," Eisner said.
Activity was much more subdued in Mid-Wilshire, where rents and vacancies barely changed from year-end. Vacancy rose slightly from 7.3 percent in the fourth quarter to 8.6 percent in the first. Class A asking rates dropped two cents to $1.44 per square foot, while Class B rose two cents to $1.31.
Net absorption remained positive at 11,406 square feet, affected in part by a few late-2005 conversion deals that didn't hit the books until the first quarter.
"As in downtown, Hollywood and Century City, we are starting to see buildings being taken out of the office inventory for conversion to residential," says Nathan Pellow, vice president with Colliers International.
Two renewals were inked in the first quarter. Ticketmaster renewed its 40,000-square-foot space at the Wilshire Colonnade (3701 Wilshire Blvd.), and Sylmark renewed its 20,000-square-foot space at 4929 Wilshire Blvd.
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