Office Market At a Glance

Inventory: 32.8 million square feet
Under Construction: 0
Class A Asking Rents: $2.89


Attracted by rents in the $2.80 range, a 14-percent vacancy rate and proximity to a growing resident workforce, the downtown office market continues to perform well. A flurry of activity was set off by a handful of new tenants leasing space, and several existing tenants expanding and/or renewing.


The increased activity is in part due to an expected rise in rents and a clampdown on improvements and concessions as Maguire Properties Inc., the Los Angeles real estate investment trust, continues to expand its presence.


"Competition is being diminished due to this consolidation of ownership, which is contributing the rising rental rates," said Lisa St. John, managing director of Jones Lang LaSalle. "Maguire now controls a majority of the trophy buildings in this market."


Average asking rates for Class A and Class B space rose 6 cents to $2.89 and $2.12 per square foot, respectively, in the first quarter, according to figures from Grubb & Ellis Co. The current Class-A rates are now the highest since the tech boom, and St. John expects them to go even higher.


"We will see rental rates continue to rise, pushing up another 10 to 15 percent over next 18 months," she predicts.


Even with higher rates, downtown will remain an alternative to the pricier Westside, where it's hard to find even Class B space in the sub-$3 asking range. Tenants may need the savings on rents to cover other items, as busy landlords no longer feel the need to entice prospects with generous concessions or improvement packages.


"Tenants are accepting the idea that it is becoming a landlord's market," says Chris Runyen, senior managing director at Lee & Associates. "Some tenants will try to renew leases early, but many landlords will want to wait until the expirations to negotiate rates."


MAIN EVENTS

-Three tenants are new to the market: Engineering firm John A. Martin subleased 35,279 square feet at 950 S. Grand Ave. in a 10-year deal with the Federal Reserve Bank of San Francisco for undisclosed terms. Global law firm Foley & Lardner LLP inked a 52,722-square-foot, 10-year lease at City National Plaza, 555 S. Flower St., for $18 million-plus, including expansion options. Architecture and planning firm NBBJ will move from Westwood in a 8,892-square-foot lease at the historic Pacific Center, 523 W. Sixth St., valued at more than $1.6 million.

-The biggest deal of the quarter was in the Jewelry District, where the 400,000-sqaure-foot International Jewelry Center, 550 S. Hill St., traded for $144 million. The Moinian Group bought the property from Hertz Investment Group Inc., which acquired it in 1996 for $24.5 million.

- Web marketing company Oversee.Net took 45,000 square feet at 515 S. Flower St. in a $20-million, 11-year lease of two floors that works out to $3.37 per square foot.
u International insurance firm C.V. Starr & Co. took 19,204 square feet the entire top floor also at 515 S. Flower St. in a 10-year, $6.2-million transaction. CH2M Hill, an environmental engineering firm, took the entire 21st floor of the building in a 19,204-square-foot, five-year lease valued at $2.9 million. The firm will move from City National Plaza.

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