Flood of Small Leases Ends Yearlong Run of Rising Vacancies

By Jacquelyn Ryan
Monday, January 27, 2014

A flurry of small lease deals last quarter helped turn around what had been a year of rising vacancy in the Hollywood office market. 

The fourth quarter office vacancy rate dropped a point from the prior quarter to 14.4 percent as companies took a combined 21,311 square feet off the market, according to Jones Lang LaSalle Inc. It was the first time the vacancy rate had decreased since 2012’s fourth quarter, when the rate was 9.1 percent.

John Tronson, a principal at Avison Young Inc. who brokers deals in Hollywood, said most of the leasing activity was concentrated in deals of 10,000 square feet or less, but it was a clear sign activity is growing.

“The velocity is still not where it was in 2007, it is sort of this tepid recovery with a gradual uptick in activity,” he said. “It’s everything from tenants in the market to tours of vacant spaces and leases being executed.”

Most of those new leases are coming from creative and tech businesses that are attracted to the increasingly hip Hollywood area, which is also centrally located between the media hubs of Santa Monica and Burbank. Executives want to draw on the young talent in the area and take advantage of amenities such as popular restaurants, clubs and theaters, according to Nicole Mihalka, senior vice president in Jones Lang LaSalle’s downtown L.A. office who brokers deals in Hollywood.

“More tech tenants are coming into the market and looking at Hollywood as an alternative to Silicon Beach,” she said. “They are moving further toward the actual geographic center of L.A. Hollywood has good transit, housing and a lot of talent is on the Eastside.”

For instance, at West L.A. real estate investment trust Kilroy Realty Corp.’s 22-story Sunset Media Tower at 6255 Sunset Blvd., StyleHaul, a YouTube fashion and beauty channel in Hollywood, signed a lease for 6,600 square feet at a new office in the neighborhood. In addition, online coupon aggregator Slickdeals.net signed a deal for 6,000 square feet in a relocation from Nevada. 

Patrick Amos, senior associate at CBRE Group Inc.’s Century City office, said the market is benefiting from increasing investment by landlords, which are both acquiring buildings and investing millions in improving older stock into the type of up-to-date creative office space businesses now seek.

For instance, Kilroy bought CBS Studios’ Columbia Square last year and is under way on redeveloping it into a 675,000-square-foot mixed-use creative office and media campus. It also spent millions to improve the Sunset Media Tower.

“There’s tons of capital chasing anything from 5,000-square-foot owner-user buildings to large multitenant products,” Amos said. The new product is starting to push everything up. Eighteen months ago you couldn’t sell a tenant on $3-a-square-foot (rental rate) and now you can’t find space for less than that.”

Indeed, asking rates in Class A buildings jumped 20 cents to $3.57 a square foot per month last quarter compared with the previous quarter.

Tronson said in some buildings that he represents he was able to seal rates at the highest price to date.

Brokers agree that the improving trajectory of the Hollywood market positions it to possibly score some marquee-name lease deals this coming year, especially as the Columbia Square project begins leasing.

“I think we can land a couple of big high-profile tenants like a Facebook or Twitter or someone of that nature,” Tronson said.

– Jacquelyn Ryan

Main Event

  • Postproduction company Todd-Soundelux renewed its lease for approximately 40,000 square feet at 900 Seward St. with landlord Vista Investment Group. The 12-year deal is valued at $14.4 million.

  • BRE Properties Inc. bought the 270-unit Jefferson at Hollywood mixed-use apartment complex at 1724 N. Highland Ave. from Long Wharf Real Estate Partners. It was the highest sale price in the submarket last quarter, $121 million, or $505 a square foot.

  • YouTube fashion channel StyleHaul signed a five-year lease for 6,600 square feet at 6255 Sunset Blvd. with landlord Kilroy Realty Corp. Terms were not disclosed but asking rates at the building are $3.50 a square foot.

  • Primco Management Inc. signed a five-and-a-half-year lease for 3,000 square feet at 6725 Sunset Blvd. with landlord Crown Realty & Development. The deal is valued at $574,000, or about $2.90 a square foot.

  • Investor HQ Development acquired the 15,000-square-foot building at 729 Seward St. from Seward Digital Partners for $7.6 million, or approximately $500 a square foot.

Hollywood

Office Market At a Glance

Inventory 2.25 million square feet

Under Construction 0

Class A Asking Rents $3.57

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