The buzz around downtown Los Angeles might be hot, but the office market was just lukewarm last quarter.
Vacancy decreased only one-tenth of a point to 19 percent in the third quarter compared with the prior period as companies took 24,327 square feet off the market, according to Jones Lang LaSalle Inc.
“The biggest effect right now is that there’s a scarcity of transactions,” said Josh Wrobel, a managing director at JLL. “There’s a lot of shuffling among downtown tenants. There’s nothing major relative to anyone coming from outside, unfortunately.”
Law firm Manning & Kass Ellrod Ramirez Trester renewed its more than 80,000 square foot lease at 801 S. Figueroa St., the largest lease renewal for a law firm in Los Angeles. That’s a good sign, because many of downtown’s bread-and-butter firms, such as Deloitte, have dramatically reduced the amount of space they occupy in the city in the past year.
But rumors that Yahoo Inc., Google Inc. and other marquee names – with a potentially large office space requirement – have been touring the area are sustaining hope that such a company might yet reinvigorate the market.
While the activity has been light, it hasn’t stopped landlords from continuing to increase asking rates.
Asking rents were up one cent year over year to $3.23 a square foot in the third quarter. That rate was a nickel higher than the previous quarter.
Arty Maharajh, vice president of research at Cassidy Turley Inc., said much of that can be attributed to one landlord, Brookfield Office Properties Inc., which owns about 42 percent of downtown’s core office properties.
“They are going to set the tone for what downtown rental rates are,” he said. “They are not going to undercut their buildings, so they are buoying a lot of the rent. You have new owners saying, If the building across the street is leasing at $3.25 a square foot, I’m not going to do $2.99 to get people to come in, let’s say $3.20.”
While leasing might be sluggish, the investment market is anything but.
Investors are betting big on what is being called one of the country’s top growing live-work-play neighborhoods.
The biggest headline out of downtown in the third quarter was certainly the sale of 801 S. Figueroa for about $175 million, or $382 a square foot, the priciest deal downtown so far this year. It was only the second time a building sold for more than $350 a square foot since the recession began. Cornerstone Real Estate Advisors bought the property from Mani Brothers Real Estate Group, which acquired it for $105 million in 2003.
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