Tuned Up: Warner Music Group moved into a former Arts District factory.

Tuned Up: Warner Music Group moved into a former Arts District factory. Photo by Ringo Chiu.

The downtown office market showed continued strength during the second quarter with rents rising, more businesses moving into available space and more new leases signed than in previous years.

According to a report from the Downtown Center Business Improvement District, the office vacancy rate during the quarter was 17.5%, up slightly from the 17.3% the previous year, while Class A rent was $3.80 a square foot, up 18 cents over the previous year.

The area had 278,907 square feet of net absorption — businesses occupying new available space — up more than 150,000 square feet from than the previous year. And downtown saw 2.3 million square feet leased, up from 1.5 million the previous year.

“The multifamily market gets most of the headlines, but the office market has been quietly delivering steady results,” said Nick Griffin, executive director at the DCBID. “This is the seventh straight quarter of positive net absorption … and the lease rates are going strong.”

One of the biggest stories of the quarter was the Arts District, which saw new leases signed, new buildings opened, strong property sales and extensive construction.

In April, Warner Music Group’s parent company purchased a former factory in the Arts District for $195 million. The company had moved into the building only a few months prior.

The Firehouse Hotel, a boutique 10-room hotel in a converted fire station, also opened in the area during the quarter.

The Arts District, Griffin said, is benefiting from a wider variety of tenants, attracting companies outside of downtown’s traditional finance and law firms. The area is also attracting more tourism.

The Soho Warehouse was under construction during the quarter and is expected to open later this year with 48 hotel rooms and 10,000 square feet of retail.

On the office side, the Santa Fe Business Center, ROW DTLA and Maxwell Building were all under construction during the quarter.

One of the biggest leases signed during the second quarter was with Ghost Management Group, an Irvine-based technology firm that runs the website weedmaps.com. The company signed a lease for a 115,000-square-foot office at the ROW DTLA.

ROW DTLA has 65 openings for retail and restaurant operations, and 1.3 million square feet of creative office space.

“You have a dynamic mix of office and retail, and it’s all very forward looking, innovative creative companies for both office and retail,” Griffin said. “They’re really hitting their stride there on the office and the retail. As that gains critical mass, it’s becoming a great destination.”

Earlier this year, WeWork Cos Inc. signed a lease for the Maxwell building, which is being developed by Brentwood-based Hudson Pacific Properties Inc.

Griffin said WeWork was a “big indictor” that the area was booming and attracting creative companies and startups. “It’s a strong indicator of where the Arts District can go,” he said.

By the end of the quarter, there were roughly six major mixed-use projects, 13 residential projects and two hotels under construction in the Arts District, according to DCBID data.

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