For the first time in nearly 20 years, a new office building is under construction in downtown Los Angeles.

Korean Air, a unit of South Korean transportation giant Hanjin Group, is building a $1 billion, 70-story tower to replace the now-demolished Wilshire Grand Hotel. When completed in 2017, the tower is slated to contain roughly 400,000 square feet of office space, topped by 900 hotel rooms; it will displace the U.S. Bank Tower as the tallest building west of the Mississippi River.

But this new office space is not likely to be welcomed by other downtown office landlords. That’s because the market continues to be dominated by a stream of space givebacks that has pushed the vacancy rate above 18 percent, according to data provided by Jones Lang LaSalle Inc.

That trend continued in the second quarter as tenants in the two largest lease deals cut their requirements roughly in half.

Wells Fargo & Co. signed an eight-year lease for nearly 85,000 square feet in a renewal at 707 Wilshire Blvd. with landlord Beacon Capital Partners, down from the 170,000 square feet it took in its previous lease; industry sources estimated the new deal to be worth about $25 million.

KPMG LLP will move to 550 S. Hope St., taking 77,000 square feet in a 12-year deal for less than half of the 176,000 square feet it had at 355 S. Grand Ave.; industry sources pegged that deal at around $16 million.

Local brokers said professional firms were expected to continue downsizing their space requirements as their leases come up for renewal over the next three years and that negative absorption rates will likely continue, meaning the vacancy rate is not likely to drop any time soon.

“The market fundamentals don’t support additional Class A, high-end office space,” said Maureen Hawley, vice president with Jones Lang LaSalle.

She said Hanjin apparently intends to fill some of the office space in the Korean Air tower with personnel from some of its other subsidiaries. But filling the rest of the space will likely be tenants now in other local buildings, especially those on Bunker Hill, putting more downward pressure on prices that now hover around the $3-a-square-foot mark for monthly rents.

Meantime, the high vacancy rate has not deterred investors from buying up downtown office buildings.

– Howard Fine

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Overseas Union Enterprise Ltd. closed its $367.5 million purchase of the landmark U.S. Bank Tower, the tallest building west of Chicago, from MPG Office Trust Inc. The 1,018-foot, 72-story tower at 633 W. Fifth St. has roughly 1.4 million square feet, though it’s about 40 percent vacant.

Developer Wayne Ratkovich led an investment team that closed the purchase of the Macy’s Plaza complex at 700 S. Flower St. for $132 million from Jamison Services Inc. The complex includes a 24-story, 678,000-square-foot office tower. Ratkovich is planning an ambitious $160 million renovation for the entire complex.

Lincoln Property Co. purchased the 220,000-square-foot office tower at 800 Wilshire Blvd. from Prudential Realty Investors for $48 million.

Wells Fargo & Co. signed an eight-year lease renewal with 707 Wilshire Blvd. landlord Beacon Capital Partners for nearly 85,000 square feet of space; industry sources estimated the deal to be worth about $25 million. The banking giant cut its space roughly in half.

KPMG LLP, which has 176,000 square feet of space on eight floors at its namesake tower at 355 S. Grand Ave., signed a 12-year lease for 77,000 square feet of space at 550 S. Hope St. with landlord LBA Realty LLC; sources pegged the deal at around $16 million. The lease backfills much of the 110,000 square feet vacated by law firm Howrey LLP when it collapsed in 2011.

Korean Air, a unit of Hanjin Group, completed demolition of the Wilshire Grand Hotel and broke ground on a $1 billion, 70-story office and hotel tower; completion is set for 2017.

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