Downtown Los Angeles took a big hit during the fourth quarter as a huge chunk of space came on the office market and a handful of small deals couldn’t take up the slack.

Southern California Gas Co., a unit of San Diego’s Sempra Energy, officially downsized its lease at its namesake Gas Co. Tower. The lease renewal at 555 W. Fifth St. was actually signed 18 months ago and was trumpeted then as a victory because the company chose to remain downtown – even though its footprint was reduced from 550,000 square feet to 350,000 square feet.

Trouble was there were only a few year-end lease deals, and some of those resulted in space being given back as well.

Bank of New York Mellon renewed its lease at 400 S. Hope St. with landlord Tishman Speyer Properties, but that only exacerbated the problem. BNY Mellon’s 10-year renewal was for 43,000 square feet, down from the 100,000 square feet of its previous lease. So that meant an additional 57,000 square feet coming on the market.

All in all, more than 536,000 square feet of space was dumped on the market than was taken up in new lease signings, pushing the vacancy rate up nearly two percentage points to 17.4 percent, according to Jones Lang LaSalle Inc.

“It does underline that most of the renewals we’re seeing these days are for less space,” said Tony Morales, managing director in the downtown L.A. office of Jones Lang LaSalle.

One exception during the quarter: Oaktree Capital Management added 26,000 square feet to its lease at the Wells Fargo Tower at 333 S. Grand Ave. in a deal estimated to be worth about $4.5 million over the remaining six and a half years of the lease.

More leases are due to expire this year, so brokers expect activity to pick up. However, opinions are split over whether the increased activity will bring down the vacancy rate.

“I expect we’ll see more negative absorption as tenants continue to shed square footage,” Morales said. “Tenants, especially law firms, have learned to make do with much less space.”

But Chris Runyen, senior managing director with the downtown L.A. office of Charles Dunn Co., believes otherwise.

“Most tenants now have already done the rightsizing they should have done two years ago,” Runyen said. “We’re now seeing some tenants seeking to expand, and we even have one client that wants back some of the space it gave up.”

MAIN EVENTS

  • Alliance Commercial Partners of Denver sold its 12-story, 218,000-square-foot building at 617 W. Seventh St. to Swig Co. of San Francisco. The sale price was estimated at $39 million. Major tenants include the Chicago School of Professional Psychology, architectural firm Perkins + Will and CyberDefender Corp.
  • Bank of New York Mellon signed a downsized 10-year lease renewal for 43,000 square feet with Tishman Speyer Properties at 400 S. Hope St. The bank previously held about 100,000 square feet in the building. The lease has an estimated value of $18 million.
  • Dongell Lawrence & Finney LLP signed an expanded 10-year lease renewal for 19,100 square feet at the Aon Center, 707 Wilshire Blvd. The renewal with landlord Beacon Capital Partners had an estimated value of about $6 million. Dongell Lawrence previously held about 1,000 square feet in the building.
  • Oaktree Capital Management LP expanded its lease with MPG Office Trust Inc. at the Wells Fargo Tower at 333 S. Grand Ave. The expansion adds 26,000 square feet to the 130,000 square feet that Oaktree currently holds and is for the six and a half years remaining on the lease. The lease addition was valued at roughly $4.4 million.
  • The Wilshire Grand Hotel at Wilshire Boulevard and Figueroa Street closed last month to make way for Korean Airlines’ $1.1 billion hotel-office complex. Korean Airlines, a subsidiary of Seoul, South Korea’s Hanjin Group, is developing with Thomas Properties Group a 45-story hotel and condominium tower, and a 65-story office tower. Completion is set for 2015.

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