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Monday, Jan 30, 2023

Property Owners Turn to Creative Options as Submarket Slows

Hueston Hennigan leased 21,000 square feet at Rising Realty Group’s PacMutual building, 523 W. Sixth St. The lease brings the building up to 95 percent occupancy. Terms were not disclosed.

USC signed a deal with landlord LBA Realty to expand by 30,000 square feet to about 245,000 square feet at 1149 S. Hill St. and 1150 Olive St., known as the AT&T Center complex.

Rising bought the Figueroa Courtyard from U.S. Bancorp for an undisclosed amount. The 270,000-square-foot, five-building campus is slated to be renovated into a creative office campus. The property is about 72 percent occupied.

Hyperloop Technologies Inc. leased 6,500 square feet in an industrial building in the Arts District. The company, which is developing Elon Musk’s proposed high-speed tube traveling system, agreed to expand to 38,000 square feet within a year.

Capital Group renewed for 323,000 square feet at Bank of America Plaza at 333 Hope St. with landlord Brookfield Office Properties Inc. The investment firm, which has been in the building since 1978, signed a 15-year deal. Financial terms were not disclosed.

Downtown Los Angeles continued its tepid recovery in the first quarter of 2014 as developers bet on its future as a bastion of creative office space.

The submarket’s vacancy rate improved three-tenths of a point over the previous year to 18.6 percent in the quarter ended March 31, according to Jones Lang LaSalle Inc. Tenants took 11,000 square feet off the market, a positive step, but still far less than the 111,000 square feet absorbed in the year-ago quarter.

Much of the activity came from deals for creative space.

“The central theme of downtown is creative office,” said George Crawford, a broker with Charles Dunn Co. Inc. “There’s a flurry of these Class B buildings being repositioned into creative office and tenants are moving in to enjoy these nontraditional environments. Tech and even engineering firms are choosing these spaces.”

Among the most buzzworthy, Hyperloop Technologies Inc., a company working to develop the technology for Elon Musk’s planned high-speed traveling tubes, signed a lease for 6,500 square feet in a converted industrial building in the Arts District. Hyperloop has committed to leasing up to 38,000 square feet in the building over the next year.

“That’s a massive move that puts that market on the map with one of the most talked about entrepreneurs in the world,” said Scott Steuber, a principal at Avison Young.

It’s not just creative companies that are planting roots in creative office.

“Creative places aren’t always just for people being creative,” said Carle Pierose, a partner at Industry Partners. “It’s basically branding. These spaces are an extension of people’s brands now and that’s important in today’s market.”

For instance, litigation law firm Hueston Hennigan, created by two lawyers who left Century City’s Irell & Manella, took 21,000 square feet in March at the PacMutual Building, a 446,000-square-foot property at 523 W. Sixth St. that was transformed into a creative office building by owner Rising Realty Group.

“Hueston Hennigan are a nationally recognized law firm,” said Pierose, who represented the landlord. “I’m very excited about that particular deal.”

That building is now nearly fully occupied.

Creative buildings have been having such success in downtown that there’s now somewhat of a flurry of developers looking to capitalize on the trend.

Rising bet on another older downtown property last quarter: Figueroa Courtyard. It bought the five-building, low-rise property, home to StubHub Inc. and American Public Media, in January for an undisclosed price from U.S. Bancorp. It plans to reposition the 270,000-square-foot property into a creative campus.

Still, downtown remains popular with its more traditional bread-and-butter tenants.

Among the largest deals, Capital Group renewed its lease for 323,000 square feet at 333 S. Hope St. with Brookfield Office Properties Inc., while the city of Los Angeles signed a deal for 126,000 square feet at 350 S. Grand Ave.

All the movement and activity allowed landlords to push up Class A asking rental rates 17 cents to $3.32 a square foot.

– Jacquelyn Ryan

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