Major events in Los Angeles County commercial and industrial submarkets in the second quarter.

The downtown L.A. office market was shaken by a few large departures during the second quarter that plunged the market back into negative territory.

Overall, 131,000 square feet more space was put on the market than was taken up in new or renewed leases, according to Grubb & Ellis Co. That’s a reversal from the first quarter, when nearly three times that much was absorbed.

The vacancy rate reflected the change, rising nearly a half-point to 15.4 percent.

Hitting the market hard was the sudden dissolution in March of Washington, D.C., law firm Howery LLP, which had slightly more than 100,000 square feet at MPG Office Trust Inc.’s 550 S. Hope St. tower.

“They just walked away from that space,” said John McAniff, managing director in the downtown L.A. office of Jones Lang LaSalle Inc. “All that space hit the market early in the second quarter and it had a huge impact.”

Another major chunk of space came on the market as a result of a huge lease renewal that Bank of America signed at its namesake 333 S. Hope St. tower. While sources estimate that the 10-year lease for 173,000 square feet should be worth more than $75 million for owner Brookfield Properties Management, it is still 50,000 square feet smaller than the past lease.

The deal continues a trend over the last two years of major downtown firms downsizing, which has been the major headwind that has offset new lease signings.

In the second quarter, the largest new downtown deal was done by Zurich North America, which inked a 10-year, 44,000-square-foot lease at MPG Office Trust’s 777 S. Figueroa St. property for an estimated $16 million. The firm, a unit of Swiss insurance giant Zurich Financial Services Ltd., vacated 50,000 square feet of space at another MPG building at 801 S. Brand Ave. in Glendale.

McAniff said he expects the market to remain soft for several more quarters. Besides the general trend of professional firms downsizing, there are multiple properties in MPG’s huge downtown office portfolio tied up in loan restructurings, hampering the landlord’s ability to sign new leases or renewals.

Once those properties complete their restructurings, McAniff said he expects MPG will have more flexibility in negotiating leases. While that will drive up transaction volume, it will likely put downward pressure on lease rates.


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