Sustained demand from legal firms helped boost rents and reduce the vacancy rate in the downtown office market in the first quarter despite troubles in the financial industry.

Occupied space in the district increased by 47,701 square feet, driving the vacancy rate down to 12.2 percent compared with 14 percent a year earlier, according to Grubb & Ellis Co., as the area continues to attract tenants from the pricier Westside.

"The vacancy rate downtown is the healthiest it's been in over 10 years," said Lew Horne, executive managing director of CB Richard Ellis in Los Angeles.

Legal firms and insurance companies are continuing to renew office leases, but financial services companies are taking a more cautious approach as layoffs continue at Wall Street firms hit hard by the credit crunch.

And with no significant office developments on the drawing board or under construction, downtown rents are rising. Asking rates for Class A space registered $3.14 per square foot, up from $3 last quarter and about 9 percent higher than the same time last year. But that's a bargain compared with Century City, where office rent is just north of $5 a square foot.

The only large blocks of vacant office space downtown are at 601 S. Figueroa St. and the U.S. Bank Tower. Ted Simpson, executive director of Cushman & Wakefield of California, said he expects the landlords will move fast to fill the space possibly the last office deals that will be available for some time.

"When those buildings are filled, vacancy will go to 7 or 8 percent and rent could go up by 25 percent overnight," he said.


Office Market At a Glance

Inventory: 31.8 million square feet

Under Construction: 0

Class A Asking Rents: $3.14


MAIN EVENTS
- The Analysis Group, a litigation consulting firm providing economic consulting to law firms and their clients, signed a lease for 26,000 square feet at 333 S. Hope St. and will abandon its 15,000-square-foot office at 601 S. Figueroa St.

- Law firm Latham & Watkins plans to vacate about 200,000 square feet at the U.S. Bank Tower by the end of the year and relocate its offices to 355 S. Grand Ave.

- Maguire Properties Inc. in late March shelved plans to sell the company after it was unable to find a suitable buyer. The largest owner and landlord of office properties downtown, including the U.S. Bank Tower and seven other high-rises, Maguire's cash flow has slowed from depressed tenant demand for its Orange County office properties.

- Istithmar, an investment fund controlled by the Dubai royal family, invested $100 million in the Grand Avenue project, giving it a 45 percent equity interest. The deal allowed developer Related Cos. to secure a construction loan. The project is finally scheduled to break ground in April after months of delay. The $2 billion mixed-use project on Bunker Hill will feature retail stores, condo towers and a boutique hotel.

- Developer David Houk is still awaiting entitlement for his Park Fifth mixed-use project, but expects to break ground in the fall on the first phase, a 76-story residential tower, despite a downtown condo glut. The project next to Pershing Square will feature a five-star hotel and high-end retail tenants.

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