Finding office space along the Wilshire Corridor was tough in the first half of the year. Historically low vacancy and high asking rates kept new deals to a minimum, slowing the pace of renewals and expansions.
The overall vacancy rate from Hoover Street in the east to La Cienega Boulevard in the west was 8.6 percent for the second quarter, down from 8.8 percent in the first quarter and 10.6 percent for the same quarter last year, according to Grubb & Ellis Co .
"There's not a lot of available inventory anywhere," said Guy Eisner, a Grubb & Ellis broker. Surrounded by extremely tight markets and with little available space of its own, the few openings that do arise quickly disappear. "Space goes on the market and you've got two offers within the week," he said.
As would be expected, average asking rates improved. Premium Class-A space rose to $2.28 at mid-year from $2.17 per square foot in the opening quarter. One year ago, landlords hoped to get $2.02 per square foot for these same buildings.
Decreased vacancy was one factor in pushing rates up. Another was keeping up with the Joneses. That has prompted most tenants in the market to stay put.
"Jamison Properties raised rental rates for approximately 40 buildings at the beginning of 2006," said Chris Runyen, senior managing director of Charles Dunn Co. Inc.. "Other neighboring landlords have done the same, creating a nearly 20 percent jump in rental rates in the past nine months."
Space in Wilshire Center is at a premium as vacancy continued the tightening that began four years ago. At mid-year 2002, vacancy was 14.8 percent; the second quarter of 2006 closed at 6.8 percent. That puts Wilshire Center nearly on the same occupancy level as marquee submarkets such as Pasadena (4.7 percent) Beverly Hills (4.9 percent) and Santa Monica (5.7 percent), where rates are at least one dollar to $2.50 higher.
As such, despite the higher asking rents within Wilshire Center, it's a relative bargain and one factor that enticed Ticketmaster to relocate from Pasadena. It also makes staying put so appealing. In the second quarter, the entertainment company renewed its 37,000 square feet at the Wilshire Colonnade, 3701 Wilshire Blvd., in a deal valued at $3.5 million.
Such high occupancy allowed landlords to steadily increase asking rates for Class A properties. At mid-year 2002, asking rates for the top buildings were $1.32 per square foot. Halfway through 2006, they were up to $1.58 per square foot. Runyen, for one, expects asking rates to climb even higher.
"Wilshire Center is overdue for rental rate increases," he said. "Rates in that market are still less than what they were 20 years ago when those buildings were built."
Two lease transactions were inked at 3731 Wilshire Blvd. Nara Bank renewed and expanded to 44,000 square feet in a 10-year, $8.6-million lease. New York Life sublet 6,400 square feet from the Los Angeles International Church of Christ for $925,000 over 68 months.
In Wilshire Center's lone investment deal, Jamison Properties continued to augment its inventory in the area, acquiring 3020 Wilshire Blvd. from Accord/New LLC for $14.7 million. The 73,000-square-foot office and retail building is 100 percent leased.
Miracle Mile/Park Mile
Miracle Mile/Park Mile also performed well, though vacancy rates snuck out of single digits in the second quarter to 10.8 percent, from 9.1 percent in the first quarter. That's still much improved from the 19.2 percent recorded three years prior.
"The shift is largely attributed to the Spelling Entertainment space at Wilshire Courtyard," Eisner said. "That's an 85,000-square-foot hole." As a result, net absorption dropped to negative 101,011 square feet at mid-year.
Though no significant lease deals were closed, Richard Schnell, senior vice president of Colliers International , expects to see some activity in the second half of the year.
"There are still a lot of people coming in from the older inventory in Hollywood where the office market is gearing down," he said. "Miracle Mile/Park Mile is a desirable place for media companies, ad agencies, and CNN. And in Park Mile, you're seeing the overflow of loan and insurance firms."
The rise in vacancy didn't adversely affect average asking rates, which have risen 51 cents in three years. Class-A rates increased to $2.72 per square foot from $2.21 per square foot in the second quarter of 2003 and they could go higher.
Sale prices also were high. In mid-April. Arden Realty paid owner J.H. Snyder Co . $93 million for the 408,000-square-foot, 27-story tower at 5670 Wilshire Blvd. and brokers anticipate an increase in asking rates to follow.
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