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Wednesday, Feb 1, 2023

Vacancies Drop, Making Rents More of a Challenge for Tenants

Tenant-friendly deals have been the norm along the Wilshire Corridor in recent years as landlords attempted to lease up buildings. But it’s getting harder to find low rates, free rent and generous tenant improvement allowances as vacancies continue to drop and asking rates rise.

The vacancy rate along the Wilshire Corridor fell to 10.6 percent in the second quarter from 11.7 percent in the previous three months and 14.3 percent for the like period a year earlier, according to Grubb & Ellis Co. Meanwhile, asking rents crept over the $2-a-foot mark, rising 4 cents sequentially $2.02.

The Wilshire Corridor is made up of two submarkets. Close to downtown, vacancies in Wilshire Center continued a steady decline to 9.7 percent from 12.2 percent a year earlier.

In Miracle Mile/Park Mile, there was more noticeable improvement, thanks to tenants seeking refuge from Beverly Hills and the Westside. Vacancies fell to 11.8 percent from 13.7 percent in the first quarter and 16.8 percent one year earlier.

Asking rents in Miracle Mile/Park Mile rose to an average of $2.33 a square foot from $2.27 in the first quarter and $2.14 a year earlier.

“Most of the occupancy is attributable to organic growth of current tenants electing to expand as the rest of West L.A. continues to tighten,” said Guy Eisner, a broker with Grubb & Ellis.

A tightening market isn’t home free yet, said Mark Robinson, corporate managing director at Studley. He said Spelling Entertainment and several other firms at Wilshire Courtyard have leases for 131,000 contiguous square feet expiring around May 2006 that aren’t expected to be renewed. (Spelling is consolidating operations with Paramount Television.)

“That’s a nice size hole in a small market and they will be pressed to make a solid pre-vacating deal or deals to keep things stable,” Robinson said.

In Wilshire Courtyard, Mojo LLC leased 17,351 square feet at 5750 Wilshire Blvd. in a 7-year deal for undisclosed terms.

There were two transactions at 6310 San Vicente Blvd. Jefferson Trading Co. took 3,149 square feet at a $1.91 rate, and Seven Arts Pictures leased 2,678 square feet at $1.80 a foot.

Rausch Purchasing Management Inc., expanded its lease by 1,692 square feet at 5055 Wilshire Blvd. in a 3-year, $2.05-per-square-foot deal.

Wilshire Center

Wilshire Center benefited from the squeeze on tenants moving eastward, looking to get their money’s worth. Average asking rates in the area are significantly lower than in Park Mile/Miracle Mile. Class-A rates rose to $1.46 per square foot from $1.40 one year earlier, while the significant Class-B market essentially held steady at $1.29 a square foot.

“Wilshire Center is still the lowest-priced office space in Los Angeles,” said J.C. Casillas, Grubb & Ellis’ regional research services manager. “This may be short-lived as surrounding markets like Hollywood and downtown are reducing their office inventory and raising rents.”

He said landlords in Wilshire Center are starting to push rates when they can and are saving on leasing expenses as tenants renew with little or no improvements.

The Westwood College of Technology expanded its space at 3250 Wilshire Blvd. to 7,000 square feet in a nine-year, $1 million deal. In the same building, Children’s Hospital leased 20,000 square feet.

With so little available space on the market, Casillas said, most of the activity was in renewals.

Ticketmaster’s upcoming relocation to West Hollywood from 3701 Wilshire Blvd. will create a brief opportunity for tenants as the landlord scrambles to backfill the space.

But Chris Runyen, senior managing director for Charles Dunn Co., said he expects to see absorption increase as more buildings in the area are converted for residential projects.

“By the end of the year, there will be five major properties that will be sold and three of them will be converted,” he said. The residential development will put more pressure on the market as tenants are drawn to an available workforce and improved amenities.

Major Events:

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At Wilshire Courtyard, Mojo LLC leased 17,351 square feet in a seven-year deal for undisclosed terms.

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At 6310 San Vicente Blvd.

Jefferson Trading Co. took 3,149 square feet at $1.91 per square foot and Seven Arts Pictures leased 2,678 square feet at $1.80 per square foot.

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Rausch Purchasing Management Inc. expanded its lease at 5055 Wilshire Blvd. in a three-year, $2.05-per-square-foot deal.

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Two tenants renewed at the Wilshire Lorraine at 4221 Wilshire Blvd. Nelson Packaging renewed its1,827-square-foot space in a five-year deal, while Holding Hands Inc. renewed and expanded to 14,000 square feet.


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