Downsizing defined downtown Los Angeles last quarter.

While some of downtown’s bread and butter tenants, such as law firms, financial institutions and professional service companies, renewed leases, many signed deals for smaller spaces.

As a result, the vacancy rate increased seven-tenths of a percent to 19.1 percent in the fourth quarter compared with the previous quarter, according to Jones Lang LaSalle Inc. It was a 2.3-point jump from the year-ago quarter.

In all, companies put more than 222,000 square feet back on the market.

Among those was Manufacturers Bank, which reduced its size by nearly 40 percent when it renewed its lease at 515 S. Figueroa St. for 42,000 square feet last quarter.

Tony Morales, managing director at Jones Lang’s downtown office, said real estate leases typically operate in five-year cycles. Leases that were signed in 2008 are coming up for renewal now and many companies that couldn’t afford to move or redesign their offices to accommodate a more dense work environment during the economic downturn are now ready to do so.

“It’s a continuation of people rightsizing,” Morales said. “Firms did not have capital to spend then but as the economy has slowly gotten better, people now have capital and can increase their density by 25 to 30 percent.”

The rising vacancy rate forced landlords to become competitive, driving Class A office asking rates down from the prior quarter by 6 cents to $3.16 a square foot a month. It was flat from the year-ago quarter.

But there were a few bright spots last quarter, said Chris Steck, director at Charles Dunn Co. Inc.’s downtown office.

“It might not have been reflected in the vacancy rate, but there were (new) deals being done,” he said.

Public health care insurance provider L.A. Care Health Plan signed a lease for 47,300 square feet at 1200 W. Seventh St. The company is expanding its downtown footprint, which already includes space at 1055 W. Seventh.

Arty Maharajh, vice president of research at Cassidy Turley Inc.’s downtown office, said Class B renovations, coupled with the continuing renaissance of the area’s apartments, trendy restaurants and shops, are positioning the market to become more popular with expanding tech and media firms.

“What we are experiencing is another side of the story: It’s the mixed-use, hospitality, retail. It’s the live-work-play environment,” he said. “A lot of the other stuff is putting us on the world stage for investors.”

Indeed, investment was high last year in downtown.

In the fourth quarter, Hollywood developer CIM Group bought the 207,000-square-foot building at 801 S. Grand Ave. for $52.5 million, or $254 a square foot, from Brickman. A joint venture led by Brookfield Office Properties Inc. finally closed its $2.1 billion acquisition of the now-defunct MPG Office Trust Inc.’s four-building portfolio, giving Brookfield control of more than 40 percent of downtown’s Class A office space.

– Jacquelyn Ryan

Main Events

Manufacturers Bank renewed its lease with landlord Manulife Financial Corp. at 515 S. Figueroa St., a 21-story, 393,000-square-foot office building. It signed a deal for nearly 42,000 square feet, downsizing from the 69,000 square feet it previously occupied. Terms were not disclosed but monthly asking rates at the building are $1.69 a square foot.

u Hollywood developer CIM Group bought a 207,000-square-foot building at 801 S. Grand Ave. for $52.5 million, or nearly $254 a square foot.

A joint venture led by Brookfield Office Properties Inc. closed its acquisition of MPG Office Trust Inc.’s remaining four office buildings for more than $2.1 billion. The portfolio, totaling 4.88 million square feet, gives Brookfield more than 40 percent of the Class A office market in downtown.

Law firm Davis Wright Tremaine renewed its 44,000-square-foot lease at 865 S. Figueroa St. Terms were not disclosed but landlord Goldstein Family Trust has a monthly asking rate of $2.07 a square foot.

Public health insurance provider L.A. Care Health Plan expanded into a second office with a new 47,300-square-foot lease at 1200 W. Seventh St., owned by Charter Holdings. Terms were not disclosed but monthly asking rates at the building are $2.34 a square foot.

Downtown L.A.

Office Market At a Glance

Inventory 29.8 million square feet

Under Construction 400,000 square feet

Class A Asking Rents $3.16

For reprint and licensing requests for this article, CLICK HERE.