Historically high rents and low vacancies are bad news for Westside tenants and those in the market for space. Many tenants are now moving to other markets where space is abundant and rents are reasonable.
The Westside's average asking rate for Class A space was $3.96 per square foot in the second quarter, according to Grubb & Ellis Co. Santa Monica was the high point at $5.75. West Los Angeles was the lowest-priced, at $3.19 higher than every other market in the county except Pasadena ($3.54) and the East Santa Clarita Valley ($3.38).
With vacancy rates at 8.6 percent across the submarket, absorption the amount of net space either taken off or put on the market remained negative for two consecutive quarters. This means tenants are leaving, given that new product wasn't hitting the market.
"With rates the way they are, you have to expect that," said Joseph Gabbaian, a senior vice president for Grubb & Ellis Co. "People have to go somewhere."
Many are moving downtown, where year-to-date absorption was 183,226, almost equal to the Westside's loss. "That definitely could have come at expense of the Westside," Gabbaian said.
The exodus is the result of two factors, noted John Eichler, a Cushman & Wakefield broker. "First, the relative cost-benefit between trophy buildings in downtown Los Angeles as compared to those on the Westside; second, the development and maturation of the residential community in downtown, and the retail and entertainment venues that are serving them."
Brokers expect rates to continue to rise as vacancies tighten. That's good news for investors looking to enter the market with a reasonable chance at recovering acquisition costs quickly. Building sales were brisk in the second quarter, with at least six properties changing hands during the period.
More companies will continue to look for more affordable alternatives.
- Labor economics and statistical consulting firm Resolution Economics leased 16,200 square feet at 9777 Wilshire Blvd., the Beverly Hills space previously held by Creative Artists Agency in a 10-year, $8.7-million deal.
- Big Rock Partners acquired the Class-B four-story 400 S. Beverly Dr. building in Beverly Hills for $16 million from Blue Real Estate.
- Douglas Emmett Inc. bought the 49,855-square-foot Century Park Plaza building, 1801 Century Park West, for $32 million. The Ziffren Barranca law firm sold the Century City building but will continue to occupy it as the sole tenant in a 12-year sale-leaseback.
- Offshore investor Build America LLC sold the 96,388-square-foot Ocean Park Plaza, 2701 Ocean Park Blvd. in Santa Monica, to Broadreach Capital Partners for $24.5 million. The company will redevelop the Class-B property, which is 92 percent occupied. The transaction brings Broadreach's Southern California portfolio to 3 million square feet.
- Rockwood Capital LLC sold the 113,000-square-foot 520 Broadway office building in Santa Monica for $75 million to BlackRock Realty. The six-story, Class A office building was fully leased at the time of the sale.
u National Healthcare Properties Inc. of Boulder, Colo., acquired the 52,000-square-foot medical office building at 2825 Santa Monica Blvd. in Santa Monica from biomedical firm AmCyte Inc. for $23 million. The building was 50 percent occupied at the time of sale.
"If I had a crystal ball, I think we'll have more of the same for the rest of this year," Gabbaian said. "I would be surprised if we saw a huge increase in absorption over next couple of quarters. We'll just tread water."
Office Market At a Glance
42.3 million square feet
Under Construction: 471,292 square feet
Class A Asking Rents: $3.96
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