Hollywood’s sluggish office market was buoyed in the third quarter by the area’s bread-and-butter: production companies.

Small firms were making lease deals in the market, and who could second guess them? With a nearly 30 percent vacancy rate, Hollywood saw lease rates continue to fall. At $2.83 a square foot, they are off 11 cents compared with a year earlier, according to Jones Lang La Salle Inc.

With the market giving back more than 51,000 square feet last quarter, Hollywood is a tenant’s market, said Brian Niehaus, an associate with Jones Lang LaSalle.

“Landlords are going to have to stretch to make deals with tenants,” he said. “If you’re repping a 10,000-square-foot tenant and they’re willing to be in Hollywood, you can get a great deal for your client.”

Consider A.V. Squad. The motion picture trailer maker signed a 10-year-lease for 14,000 square feet at 7750 Sunset Blvd. The deal was valued at roughly $4.2 million, or only about $2.50 a square foot.

However, Niehaus said that most deals last quarter were for shorter terms as smaller production houses leased space on a project-specific basis to handle preproduction work, filming and then editing and other post production.

“We’re going to see gradual growth at best” among larger tenants signing long-term leases, he said.

One bright note: Brokers have noticed a stronger demand for spaces with high exposed ceilings, concrete floors and other non-traditional features.

“Sometimes a tenant will move in to a traditional space and rip up the carpets or expose the ceilings. You can get a premium for that,” said Steven Salas, vice president with Madison Partners.

Meanwhile, despite the slowdown in the commercial office market, developers continue to invest in the neighborhood, which has been on an upward trajectory for a decade.

CIM Group Inc. in Hollywood bought the former Old Spaghetti Factory building at 939 W. Sunset Blvd in August for $21 million. The company plans a mixed-use development with retail, offices and residential units.

The neighborhood is being supported by continued demand for the multiple residential developments that have been erected over the past few years. Among them are the 180-apartment Avenue complex at 1619 N. La Brea Ave. and 270-unit Jefferson at Hollywood Boulevard and Highland Avenue.

Joseph Smolen of Marcus & Millichap, says most are at least 90 percent rented. “On the residential side, Hollywood continues to pull young, urban-minded professional residents from other parts of the city,” he said.

MAIN EVENTS

  • A.V. Squad signed a 10-year lease valued at roughly $4.2 million for 14,000 square feet at 7750 W. Sunset Blvd. The advertising firm, which produces trailers for motion pictures, is spending more than $500,000 for renovations. Its credits include “The King’s Speech” and “Ironman.”
  • CIM Group Inc. bought the former Old Spaghetti Factory building at 939 W. Sunset Blvd. in August for $21 million. The company plans to develop it as a mixed-use property with 14,000 square feet of retail, 40,000 square feet of office and about 200 residential units.
  • Edmonds Entertainment Center, a 34,711-square-foot office building at 1635 N. Cahuenga Boulevard, was sold for $7.3 million. The investors plan to renovate the building aimed at the entertainment industry tenants.
  • The Los Feliz building that once was home to the Brown Derby went on the market for $10.6 million in August. Currently, the building at 4500 Los Feliz Blvd. houses a Chase bank branch and Louise’s Trattoria.
  • Musicians Institute bought a 5,612-square-foot office building at 1536 N. Highland Ave. for $3 million. The Hollywood contemporary music school is expanding and lacks parking. The Highland Avenue building has an ample supply of parking spaces.
  • The historic Villa Bonita apartment building, commissioned in 1929 by Cecil B. DeMille and designed by architect Frank Webster, was sold to investor Heather Naylor for $4.3 million. Director Francis Ford Coppola once called the apartments home.

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