The downtown L.A. market continued its downward spiral during the second quarter as several more downsizing law firms gave up office space.
The belt-tightening put 177,000 square feet of space back on the market despite some new lease deals, pushing net absorption deep into negative territory, according to Grubb & Ellis Co. A half-million more square feet of space is available for lease than at the start of the year.
Not surprisingly since the first quarter, the vacancy rate climbed a half-point to 15.7 percent and Class A asking rents fell 13 cents to $3.14 per square foot. These seem like ideal conditions for bargain hunters, but few are taking advantage of it.
“Companies right now are very uncertain about their long-term prospects, so they are reluctant to sign leases,” said Whitley Collins, regional managing director for the L.A. office of Jones Lang LaSalle.
Making matters worse, many landlords are so burdened with debt that they do not have the financial flexibility to offer lease sweeteners.
“This is especially the case with the Maguire properties,” Collins said. MGP Office Trust, formerly Maguire Properties Inc., is the largest owner of Class A office space in the downtown market and has been struggling to reduce debt by selling off assets.
Collins said he knew of at least three law firms that had downsized and each put about 25,000 square feet of space up for sublease including Latham & Watkins in the U.S. Bank Tower, Paul Hastings Janofsky & Walker at 515 S. Flower St. and Jones Day at 555 S. Flower St.
Office Market At a Glance
Inventory: 32.2 million square feet
Under Construction: 0
Class A Asking Rents: $3.14
- A new law firm signed a 10-year lease for 17,500 square feet on the 60th floor of the U.S. Bank Tower. The law firm, Fitzpatrick & Hunt Tucker Collier Pagano Aubert LLP, was formed by partners of Mendes & Mount LLP and is headquartered in New York. The $4.5 million deal at $3.27 per square foot includes $250,000 worth of free used-office furnishings supplied by landlord MPG Office Trust.
- Los Angeles County leased 142,360 square feet of space in the L.A. Mart at 1933 S. Broadway. Building owner Vornado Realty Trust was represented by Merchandise Mart Properties and the L.A. Mart. Financial terms were not disclosed.
- Online retail apparel company HauteLook signed a lease for 24,765 square feet at 1212 S. Flower Street. The building is owned by Kor Group. Financial terms were not disclosed.
- Public Storage Co. signed a lease for 105,000 square feet of Class B industrial space at 300 S. Avery St. on the east side of downtown. The seller was Avery Storage Partners. Financial terms were not disclosed.
- Southern California Gas Co. renewed its 350,000-square-foot lease at its namesake tower at 555 W. Fifth St. for 15 years. Terms of the deal with MGP Office Trust were not disclosed. The Gas Co., a subsidiary of San Diego-based Sempra Energy, has been the anchor tenant in the 50-story office tower since it was completed in 1991. The deal was signed after June 30 so it did not improve the market’s metrics in the second quarter.
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- DOWNTOWN: Law and Financial Firms Look to Give Back Space
- DOWNTOWN: Fourth Quarter Lease Activity Narrows Negative Absorption Rate
- DOWNTOWN: Highrise Sale, Lease Lift Core Office Market
- DOWNTOWN: Downsized Lease Renewal, Firm’s Closure Drive Up Vacancy Rate
- DOWNTOWN LA: Positive Absorption Rate Rises as Tenants Sign for Longer Terms
- DOWNTOWN L.A.: Airline Scales Back Twin-Tower Plan as Vacancies Remain Sky High
- Some Tenants Think Smaller as They Stay Put but Give Back Space
- DOWNTOWN: Law Firms, Government Agencies Shed Office Space