The downtown L.A. office market stabilized during the third quarter as firms renewed leases for longer terms despite a weak recovery that has stalled hiring.
The trend pushed absorption into positive territory in the quarter as about 100,000 square feet more space was leased than put on the market, dropping the vacancy rate a few tenths of a point to 15.6 percent, according to figures compiled by Jones Lang LaSalle Inc.
Despite the improvement, broker Tim Miller, vice president at the downtown office of Jones Lang LaSalle, said it would take several more quarters of sustained absorption before the area can be considered in recovery mode.
“It’s still a soft market,” Miller said.
But tenants are signing longer leases: Ten-year deals are now more common and there have even been a couple of 15-year deals. Brokers said the area’s professional service firms are convinced that most of their internal staff cuts are behind them, allowing them to lock in today’s discounted lease rates.
“Firms are willing to make longer-term commitments now when they renew,” said John Zanetos, vice president with West L.A.-based CBRE Group Inc., who noted that a year ago most tenants were renewing for five years or less.
In another encouraging sign, the quarter’s largest lease renewal did not involve the give-back of a significant amount of space: Skadden Arps Slate Meagher & Flom LLP signed a 10-year lease renewal with MPG Office Trust Inc. for 156,000 square feet at One California Plaza, 300 S. Grand Ave., roughly the same amount of space it currently occupies.
“This is the first time in a long time we’ve seen such a big renewal with little or no give-back,” said Chris Runyen, senior managing director with Charles Dunn Co. in Los Angeles.
But that doesn’t mean the era of give-backs is over. The quarter’s second largest lease involved Aon Insurance, which renewed for 15 years at its namesake Aon Center at 707 Wilshire Blvd. for 77,000 square feet on four floors. That’s down about 32 percent from the six floors the brokerage had occupied.
Brokers expect several additional large leases to be finalized in coming months, but that could be offset by tenants that have indicated they may exit the market or at least downsize.
“It’s two steps forward and two steps back,” Miller said.
- In the largest downtown office lease deal of the third quarter, Skadden Arps Slate Meagher & Flom LLP signed a 10-year lease renewal with MPG Office Trust Inc. for 156,000 square feet at One California Plaza, 300 S. Grand Ave., in a deal that local brokers valued at nearly $50 million.
- Aon Insurance signed a 15-year lease renewal for 77,000 square feet of space on four floors of its namesake tower at 707 Wilshire Blvd. Local brokers estimated the deal with landlord Beacon Capital Partners to be worth around $42 million.
- Grant Thornton LLP signed a 10-year lease for nearly 25,000 square feet at Thomas Properties Group Inc.’s City National Plaza in a deal estimated to be worth $6 million. The Chicago audit and accounting firm decided to expand its downtown L.A. office and is relocating from its longtime home at 1000 Wilshire Blvd. to the 515 S. Flower St. property.
- The partnership that owns the 24-story Figueroa Tower at 600 S. Figueroa St. filed for Chapter 11 protection in July. Lead partner Milbank Real Estate Services Inc., which purchased the building for $62.4 million in 2004, had been trying to sell the tower for more than a year. Lease income had fallen sharply since a law firm broke a 60,000-square-foot lease.
- Torrey Pines Bank, the Southern California subsidiary of Western Alliance Bancorp, signed a 10-year lease for its bank branch in 1the One Bunker Hill building at 601 W. Fifth St. The deal for 14,483 square feet of space was valued at about $4.1 million.
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