The Wilshire Corridor is getting pricey. Average asking rates for Class A office space from Miracle Mile to Mid-Wilshire began rising in late 2003 on shrinking vacancy rates and have hit $2.35 per square foot.
Now, with an 8.1 percent vacancy rate for the corridor and some recent big money sale transactions, building owners are escalating rents overnight in some cases.
"Landlords have been aggressively raising rental rates and parking rates to boost revenues that justify record purchase prices for the area," said Chris Runyen, senior managing director for Charles Dunn Co.
In the Miracle Mile and Park Mile area, Ratkovich Co. and Prudential Real Estate, which bought 5900 Wilshire for $102.5 million in 2005, pioneered the price increases. Arden Realty, which picked up 5670 Wilshire Blvd. for $93 million earlier this year, followed suit. "Both bumped rates by at least 25 percent overnight," Runyen noted.
That opened the door for Legacy Partners to raise rates at 6300 Wilshire Blvd. after acquiring it from Tishman Speyer Properties Inc. for $132 million in September. (Tishman paid $75 million for the 21-story, 400,401-square-foot office building in 2004.) Once the building closed escrow, Legacy hiked rates to $2.95 from $2.35, setting a new standard.
As a result, average asking rates for Class A space in Miracle Mile and Park Mile rose to $2.78 per square foot in the third quarter from $2.72 at mid-year and $2.05 three years prior.
"That's almost a Westside rate," said Blake Mirkin, a senior vice president with CB Richard Ellis Group Inc. "Miracle Mile remains a strong spot because it's got a good product type and good amenities. It works for tenants because employees can move in and out of buildings and have a good selection of restaurants and retail."
Even Class B rates cracked the all-important $2 per square foot barrier, closing the quarter at $2.01, with entertainment companies and advertising agencies continuing to keep Miracle Mile and Park Mile active.
"There are a lot of large clients who stay there, like E (Entertainment) and Primedia. They've been there so long that you just don't have a lot of big activity," Mirkin said.
Despite recording no deals of consequence in the quarter, vacancies continued to drop. The rate fell to 10.4 percent in the third from 10.8 percent for the second quarter.
Further east, Jamison Properties raised rents in 40 of its Wilshire Center buildings earlier this year in Koreatown. The two premiere assets, Equitable Plaza, 3435 Wilshire Blvd., and the Metroplex, 3530 Wilshire Blvd., are now leasing for $1.70 per square foot.
"That submarket hasn't seen those rates in over 15 years," Runyen said. "There is now some movement within buildings on Wilshire. Rental rates are increasing, and there is more of a premium to be in the better buildings than there was before."
For example, rates in Wilshire Center in 2004 ranged from $1.15 to $1.40 per square foot. Now it ranges from $1.20 to $1.70, with the average asking rate at $1.60. That's up from $1.58 last quarter and $1.47 a year ago. Five years ago, landlords were seeking an average of $1.30 per square foot.
Lease activity was negligible, with only one sizable deal recorded. The Preferred College of Nursing leased 7,500 square feet at 4221 Wilshire Blvd. in an eight-year deal at undisclosed terms. Other activity was restricted to smaller transactions involving existing lessees.
"Tenants are moving within the market to find space within their budget, now that a significant differential exists," Runyen explained.
That pushed vacancy rates to an historic low of 6.3 percent, dropping from 6.8 percent a quarter earlier and 14.8 percent in 2001. Year-to-date net absorption was positive at 186,162 square feet, much better than 103,935 square feet the market gave back for the same period in 2003.
Brokers expect occupancy to inch up each quarter driven by in-market expansions. "The current tenants aren't leaving, and people aren't beating down the door to get in there," Mirkin noted.
There were several investment deals in Mid-Wilshire.
The Wiltern Center, 3780 Wilshire Blvd., was sold by Judah Hertz's 3780 Wilshire Boulevard LLC to 3780 Wiltern Center LLC for $25.2 million. The Golden State Mutual Life Building, 1999 W. Adams Blvd., was sold to West Adams Investment Trust for $8.0 million by EN Golden State LLC. And the 30,406-square-foot medical and dental office building at 2323 W Eighth St. was sold to BBC Investment LLC for $5.25 million from Jae Youn and Hye Sook Kim.
Additionally, the building at 3160 W. Sixth Street was sold to the L.A. Unified School District for $5 million by the L.A. County Metropolitan Transportation Authority. The building was demolished to make way for a new school on the site, which will be a part of the Vermont/Wilshire Metro station mixed-use development.
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