Major events in Los Angeles County commercial and industrial submarkets in the third quarter.
Although downtown continued sliding during the third quarter, the office market has begun to show some signs of life.
The first sale of a major office tower in two years closed during the quarter as Newport Beach investor KBS Realty Advisors agreed to buy the Union Bank Plaza tower at 445 S. Figueroa St. from Hines Interest LP of Houston for a reported $208 million, or about $330 per square foot.
Also, the Gas. Co. signed a 15-year renewal on a 350,000-square-foot lease in its namesake tower at 555 S. Figueroa St. That deal was announced in early July.
Yet even a deal as large as the Gas. Co. didn’t put a dent in the huge overhang of space, since it was only a renewal. During the third quarter, a net 85,000 square feet of vacant space came on the market, for a year-to-date negative absorption total of 586,000 square feet, according to Grubb & Ellis Co. That pushed the vacancy rate up to 16 percent from 15.7 percent in the second quarter.
Why is this happening? As downsizing law firms and other companies renew their leases, they are committing to less space and putting the excess space on the market.
“These companies are renewing for smaller spaces,” said Hank Elder, senior vice president with the office group at Grubb & Ellis. Elder said he knew of a “typical” deal in which a law firm is seeking to renew for 30 percent less space.
Still, there are faint signs of hope for a recovery. “We have a couple of companies scouting the downtown market; they are expected to make their decisions this month,” said Whitley Collins, a regional managing director with Jones Lang LaSalle.
Office Market At a Glance
Inventory: 32.2 million square feet
Under Construction: 0 square feet
Class A Asking Rents: $3.19
- The 97-year-old, 264-room Rosslyn Hotel at 112 W. Fifth St. was sold by JHK Group LLC, a group of South Bay real estate investors, to SRO Housing Trust for $12.1 million. JHK had recently acquired the building from Irvine businessman John Gates. SRO has not stated its plans for the building, which was upgraded under Gates’ ownership.
- In the first sale of a downtown office tower in two years, Newport Beach investor KBS Realty Advisors agreed to buy the Union Bank Plaza tower at 445 S. Figueroa St. from Hines Interest LP of Houston for a reported $208 million, or $330 per square foot. Union Bank of California leases the majority of the 627,000-square-foot building.
- Downtown property owner Mark Farzan purchased several assets in and around the 13-story Eastern Columbia building at 849 S. Broadway from the Kor Group, which had converted the former department store into luxury condos. The $5 million transaction included the 18,000-square-foot vacant ground floor and two adjacent parking facilities.
- Andrew Meieran, owner of the Edison bar, signed a 10-year lease with family-owned Clinton Investments LLC for the five-story building at 648 S. Broadway that houses the iconic Clifton’s Brookdale cafeteria. Meieran also bought the restaurant from the Clinton family for an undisclosed sum. Meieran plans $2.5 million in upgrades to the restaurant.
- Nossaman LLP moved from the Union Bank Tower at 445 S. Figueroa Street into 40,000 square feet of space at 777 S. Figueroa formerly occupied by Kirkland & Ellis LLP.
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