Higher office occupancy, particularly in Westwood, boosted rental rates in 2005's fourth quarter as the Westside continued to rebound from the post-tech doldrums.
Acquisitive retail and residential developers could further squeeze the market this year.
"The Westside leasing market is getting as tight as a drum and it's getting harder and harder to find any substantial blocks of space in virtually all the markets," said Blake Mirkin, senior vice president at CB Richard Ellis Group Inc.
Overall vacancies in the market dropped to 8.8 percent in the last quarter of 2005 from 14.8 percent at the close of 2004, according to figures from Grubb & Ellis Co. With large spaces mostly leased, the number of transactions slowed in the last half of the year with the vacancy rate dropping just 1 percent from 9.8 percent in the third quarter.
The growth in demand for residential development and the amenities that go with it also could create an interesting market dynamic in 2006, according to Mike DeSantis, senior director with Cushman & Wakefield Inc. He expects a bidding war as developers vie for opportunities.
"Residential condo and retail developers will continue to outbid office developers for any available land where any of those uses are allowed," DeSantis said.
Westwood is largely responsible for the improving numbers, especially the 10960 Wilshire Blvd. building. Long the site of large blocks of vacant space that skewed the submarket's numbers for several quarters, the building began to stabilize in the last half of 2005. As a result, Westwood's vacancy closed 2005 at 8.2 percent, a dramatic drop from the 21 percent recorded in the fourth quarter of 2004.
Santa Monica posted the lowest vacancy in the fourth quarter at 7 percent, down from 7.6 percent in the third quarter and 12.6 percent a year earlier.
The highest vacancy rate on the Westside was in Century City, which closed the year at 11.2 percent, down slightly from 11.5 percent in the third quarter and 17.2 percent in the fourth quarter of 2004. Metro-Goldwyn-Mayer Inc. changed its strategy on its 350,000-square-foot sublease at 10250 Constellation Blvd. After holding out for full-floor transactions, the firm began marketing the second and third floors on a short-term basis. The asking rate is $2.50 per square foot, below the $3.02 average asking rate for Class A space there.
"The offering is significant because they can't do multi-tenant floors without incurring significant costs," says Neil Resnick, executive vice president/managing director of transaction services with Grubb & Ellis.
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