After a serious spike in rental rates and a decline in vacancies over the last year, the Hollywood-West Hollywood office market experienced an inevitable adjustment last quarter.

Class A asking rents fell 50 cents to $3.95 per square foot during the April-June period, still well above the $3.55 rate of last year's second quarter. Class B rents fared better, increasing nearly 30 cents to $3.28, according to Grubb & Ellis Co.

"There are still a lot of tenants out in the market, and I'm personally seeing a migration from the Westside where the rents are really high," said John Tronson, principal, Ramsey-Shilling Commercial Real Estate Services. "They're $6 or $7 per square foot there as opposed to $3 or $4 in Hollywood-West Hollywood."

Vacancies rose more than a point and a half to 5.6 percent last quarter, settling back into year-ago levels, but still significantly lower than the county average of 10.8 percent. Only Burbank, Beverly Hills and Carson have lower vacancy rates than Hollywood; all areas are around 5 percent.

"Anytime the vacancy rate is under 10 percent, it's really still a landlord's market and it's just still too expensive to build new office product so there's no overbuilding, which was a huge factor in the residential market collapse," Tronson added.

On the sale side, activity has slowed thanks to uncertainty in the capital markets. "Many of the institutional funds, primarily from New York, have pulled back dramatically," according to Tronson. "Even if you can get a loan you've got to come up with more cash to get in the deal."


Office Market At a Glance

Inventory: 3.7 million square feet

Under Construction: 400,000 square feet

Class A Asking Rents: $3.95


MAIN EVENTS

- An office building at 1545 Wilcox Ave. gained two new tenants last quarter. Public relations company Santiago Solutions took 3,660 square feet, while design firm Two West leased 3,000. Both companies signed five-year leases at a rate of approximately $2.85 per square foot, modified gross.

- Danley Investment & Management Co. leased out a 9,333-square-foot office unit in the seven-story building at 6751-6755 Hollywood Blvd. to marketing and communications firm Fleishman-Hillard. The company took the space for five years for a total consideration of $1.7 million.

- Tadashi Shoji, designer, owner and president of the Los Angeles-based fashion house Tadashi, purchased a 4,000-square-foot retail property at 812 N. La Cienega Blvd. Shoji bought the building from 812 La Cienega Partners for $3.6 million and will use it as the location of his second California store.

- Radio City LLC acquired a 9,616-square-foot industrial building at 7000 Santa Monica Blvd. in West Hollywood for $2.85 million. Delnet Financial Inc. sold the property, which is zoned for manufacturing but has been used as a recording studio for many years.

- Travelers Aid Society of Los Angeles, a non-profit private social services agency, relocated to a new office building last quarter that will serve as the organization's headquarters and as its Hollywood-East Hollywood service center. The recently renovated 4,000-square-foot building at 1507-1509 Winona Blvd. cost $1.2 million.

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