West Hollywood appears ready for its close-up. Of all the Westside markets, the city posted the most marked increase in asking rates for Class A space, jumping over the course of the year to an eye-popping $4.37 per square foot from $3.32, according to research by Jones Lang LaSalle Inc. That puts it in league with perennial headliners Santa Monica ($4.44), Century City ($4.31) and Beverly Hills ($4.15).
But it might be a trick of the light.
In small submarkets such as West Hollywood, changes in a handful of buildings’ asking rates move averages dramatically.
“The increase can be attributed partly to the Red Building, which put up a $4-plus number as an asking rate,” explained Devon Parry, senior research analyst for Jones Lang LaSalle. “We have also seen quarter-over-quarter rental increases ranging from 25 to 35 cents per square foot at both 9229 and 9255 West Sunset. Additionally, while the Lot at Formosa won’t be recognized as a completed delivery until the first quarter of this year, we have seen a fair amount of preleasing at healthy rates.”
In Brentwood, opportunistic tenants soaked up enough space to generate a positive net absorption of 175,000 square feet at the end of 2013, compared with a negative 76,325 square feet in the year-earlier quarter.
“Brentwood has been saddled with a fair amount of space for quite some time and tenants saw the opportunity to take advantage of a submarket where rents were essentially $1.50 to $2.00 per square foot cheaper than Santa Monica,” said Andrew Jennison, a partner at Industry Partners.
Crystal Cruises took 50,000 square feet at 11755 Wilshire Blvd., relocating from Century City, where asking rates were $4.31 at year’s end. Brentwood asking rates rose 8 cents in the fourth quarter to $3.35 per square foot. Year-end vacancy was 20.1 percent, down significantly from the 25.5 percent posted in the quarter ended Sept. 30.
Asking rents in Santa Monica appear to have been on a downward trajectory all year, finishing 2013 at $4.44 per foot per month compared with $4.73 a year earlier. But things aren’t always what they seem.
“Some landlords are holding back the rates because the market’s moving so fast,” explained Michael McRoskey, a managing director at Jones Lang LaSalle. “They don’t want to quote a rate until deals come in.”
That tanks the average asking rate.
“While interesting, this is not really indicative of the market’s overall performance or rental value,” Parry cautions. “Santa Monica is still one of the tightest and most expensive submarkets on the Westside.”
In fact, brokers agree that the city’s premier buildings are raising rates.
“One year ago, a $4.25-to-$4.75-per-square-foot (deal) was doable,” Jennison recalled. “Now, the best in class is leasing at the full-service gross equivalent of $5.50 to $6.00.”
Vacancy in the beachside submarket is 11.2 percent, the second lowest on the Westside after Beverly Hills’ 10.9 percent.
The Westside is still the county’s preferred address, and a slew of entertainment, digital, content and media companies closed deals just prior to year’s end to secure their places.
“The economy is improving … and more businesses are confident in long-term decisions,” McRoskey said. “They are comfortable to expand for the first time in several years.”
– Margot Carmichael Lester
EOP/Blackstone sold the 1.3 million-square-foot Howard Hughes Center to Hines REIT for $506 million, or $389 per square foot.
The 1919 Building, a medical office building at 1919 Santa Monica Blvd., traded for $26 million in an off-market transaction. The Gillis Family Partnership sold the 47,000-square-foot Class A property to Goldstein Planting Investments for $553.19 per square foot.
Riot Games Inc. signed a lease for the entire 284,000-square-foot Element LA campus at 1901 S. Bundy Drive. Terms were not available, but asking rates were reportedly around $3.75 per square foot at the time of the transaction.
Deluxe Entertainment inked a 63,400-square-foot deal at 3401 Exposition Blvd. in Santa Monica for $44 million.
Lionsgate Entertainment renewed its 125,000-square-foot lease at 2700 Colorado for undisclosed terms.
Office Market At a Glance
Inventory 46.7 million square feet
Under Construction 379,002 square feet
Class A Asking Rents $3.92
For reprint and licensing requests for this article, CLICK HERE.