Major events in Los Angeles County commercial and industrial submarkets in the second quarter.
As Westside office vacancies declined – and leasing rates rose – in the second quarter, the Hollywood and West Hollywood markets saw a bump of their own.
Tenants seeking good quality but cheaper lease deals helped the combined markets absorb 19,287 square feet, dropping the vacancy rate a half-point to 13.4 percent, according to Grubb & Ellis Co.
Advertising agencies, Internet media companies and others that considered Santa Monica as a destination in slower times are now thinking twice and either moving or staying put in Hollywood and West Hollywood, brokers said.
“While demand is still light, we are starting to see vacancy rates coming down in parts of the Westside and that should improve numbers for secondary markets such as Hollywood and West Hollywood,” said Rick Buckley, principal at L.A. Realty Partners. “There is traditionally a six- to 12-month lag from the prime markets to West Hollywood and Hollywood.”
The strengthening of the Hollywood area helped landlords boost Class A rents 8 cents to $3.92 a square foot. Part of the growth also was attributed to the rental rates proposed at Red Building, the final phase of the Pacific Design Center in West Hollywood.
The building, which is under construction and is expected to come on line by the end of the year, is being preleased at an asking rate of $5 a square foot by developer Charles Cohen.
“With the Red Building, it’s going to be very interesting to see if the rental rates are going to be met by the market. We’ll see if the market appetite for space is strong enough to support rental rates that are between $4.50 and $5.00 per square foot,” said Anthony Gatti, managing director at Jones Lang LaSalle.
However, “if the market appetite for space isn’t as strong as the developers expect, they will have to lower their rental rates. We’ll see who has the stronger constitution,” he said.
Meanwhile, the Church of Scientology, which has its West Coast headquarters in Hollywood, continues to be an active real estate player in the market.
The church bought the headquarters and studios of KCET-TV at 4401 W. Sunset Blvd. for an undisclosed price. The church plans to use the studios to produce religious programming. The public television station is moving to Burbank.
- Sunset Media Tower, which hosts the headquarters of Frederick’s of Hollywood, reality show production company Magical Elves and an office of AC Nielsen is expected to be sold for $76.5 million. The buyer is Kilroy Realty Corp. Current owner USA Sunset Media Management bought the 321,000-square-foot building at 6255 W. Sunset Blvd. at Vine Street for $82.5 million in 2005.
- KCET-TV, the largest independent public broadcasting channel in the U.S., sold its 4.5-acre property at 4401 W. Sunset Blvd. to the Church of Scientology. Terms of the deal were not disclosed by either the broker for the church, Binswanger/Realty Advisory Group, or CB Richard Ellis Group Inc., which represented KCET. The station had dropped PBS programming in October 2010 to save almost $7 million in programming fees. It is moving into the Pointe office complex in Burbank’s Media District, where its facilities will be modern but smaller.
- The final phase of the Pacific Design Center, known as the Red Building, is under construction and preleasing to tenants. The 400,000-square-foot building is at the corner of Melrose Avenue and San Vicente Boulevard. United Talent Agency and television production company Endemol USA Inc. are reportedly among those interested in leasing space. Cushman & Wakefield Inc. is the leasing agent for developer Cohen Brothers Realty Corp.
- The Mondrian Los Angeles was purchased for $137 million by Pebblebrook Hotel Trust of Bethesda, Md. from Mondrian Holdings LLC. The 237-room hotel at 8440 Sunset Blvd. will continue to be operated by Morgans Hotel Group. Opened in 1996 by famed hotelier Ian Schrager, the hotel continues to attract celebrities and Hollywood stars.
- On April 19, Operation USA, an L.A.-based international relief charity, signed a five-year lease for 2,560 square feet at 7421 Beverly Blvd., for $1.95 per square foot. It plans to move in July 15.
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