Talk about too much of a good thing. Steadily sinking vacancy rates and historically high rents are putting the brakes on office leasing in Century City, Santa Monica, Culver City and Brentwood.
Vacancies dipped to 7.3 percent at mid-year, down from 16.4 percent a year ago. At the same time, average asking prices for Class A and B space rose with the increased demand, according to Grubb & Ellis Co .
"Total leasing is slowing down on the Westside due to lack of inventory," observes David Wilson, president of Lee & Associates West Los Angeles . "With no expansion space and no cheap deals why move in this environment?"
Rates for premier space rose 13 cents on the quarter to $3.18 per square foot, up from $2.80 a year ago. Class B space increased 12 cents during the same period to $2.90 per square foot, far higher than the $2.34 reported last year.
Performing best were Beverly Hills and Santa Monica. At mid-year, Beverly Hills reported a vacancy rate of 4.9 percent, with Class A asking rates of $3.33 per square foot; Santa Monica's vacancy was 5.7 percent and Class A asking rates were $4.11 per square foot.
These markets remain attractive to investors, though the flurry of deals has subsided. Kennedy Wilson bought 9701 Wilshire Blvd. for more than $51 million from Broadway Real Estate Partners LLC . The 108,000-square-foot, 12-story building occupies the northeast corner of Wilshire Boulevard and Roxbury Drive. In Santa Monica, Redwood Capital Partners acquired Commerce Park, the five-acre office park in the 3200 blocks of Olympic Blvd. and Nebraska Avenue, from Pacific Structures LLC for $29.1 million.
Few tenants could close deals, however. No significant leases were recorded in Beverly Hills. In Santa Monica, video game maker Activision Inc . renewed for 125,000 square feet at the Santa Monica Business Park at 3100 Ocean Park Blvd. The deal is reportedly worth $17.1 million over 44 months. Film distributor Genius Products Inc . left San Diego to move the 17,500-square-foot building at 2230 Broadway in a five-year lease worth about $3.6 million.
In Century City, most brokers say it's too early to declare a rebound, but the area's office market improved dramatically by mid-year. The vacancy rate was 10.5 percent in the second quarter, down from 11.2 percent in the first quarter and 17.7 percent in 2004. Asking rates improved, too, at $3.21 per square foot from $3.13 in the first quarter.
The most-active buildings were at Watt Plaza. Services giant Towers Perrin Forster & Crosby renewed its 43,000 square feet over three floors at 1925 Century Park East for three years at $4.4 million. Entertainment attorneys Jackoway Tyerman Wertheimer Austen Mandelbaum & Morris let 19,800 square feet in a $6.9 million, 11-year transaction. Finally, personal auto and property insurer Progressive Casualty Insurance Co. leased 12,000 square feet at the 1875 Century Park East tower for five years at $2 million.
International Creative Management Inc. is ready to lease five floors at MGM Tower, 10250 Constellation Blvd., in a 12-year lease valued at more than $55 million.
"What's really happening in Century City is the talent agents. Those kinds of tenants have always wanted smaller buildings in Beverly Hills, but they're growing and need more space," says Richard Schnell, senior vice president of Colliers International .
In West Los Angeles, there was an enormous increase in Class A asking rates, which rose to $2.68 per square foot in the second quarter from $2.34 per square feet in the first quarter. A lack of space that drove vacancies to 7 percent.
"Vacant space has deceased 33 percent from last year and available sublease space is down 31 percent," noted J.C. Casillas, client services manager for Grubb & Ellis. Vacancy was at 7 percent in the second quarter.
Indeed, rising rents and no vacancies are pushing some tenants who had wanted a Westside address to look farther south. The Culver City/Marina Del Rey area is enjoying the benefits. Vacancies dropped to 7.2 percent this year from 11.9 percent in the second quarter last year, pushing up asking rates for Class A space to $2.70 per square foot space from $2.34 per square foot.
Abraxis BioScience Inc . purchased a 3.5-acre site in Culver City for its new research and development facility, to be completed in 2008. The company also picked up a 50,750-square-foot laboratory facility in Marina del Rey from CancerVax Inc .
The continued Playa Vista development adds top-tier space to the market. Dallas-based Lincoln Property Co . and Bethesda-based ASB Capital Management acquired a 14-acre parcel at the 1,000-acre Playa Vista project from Playa Phase I Commercial Land Co . Terms were not officially disclosed, but the deal is estimated to be worth about $100 million. The joint venture will bring 820,000 square feet of office space online over the next 12 months.
Looking to lock into the tight market before rates rise even more, Sony Pictures Entertainment renewed its space at the 44,626-square-foot office building at 10100 Venice Blvd in a three-year, $8.5-million deal.
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