Action in Hollywood during the third quarter might have further emboldened developers, who have already made it the submarket with the most new office space under construction.
The office market continued to improve as tenants took 7,665 square feet, pushing the vacancy rate down 1.6 points to 13.8 percent in the third quarter over a year ago, according to data compiled by Jones Lang LaSalle Inc.
“Hollywood felt very good in the last quarter,” said John Tronson, principal at Avison Young Inc. “We are seeing tenants coming from outside the market that are leasing space, and existing tenants inside the market are growing. It’s very strong.”
The biggest contributor to the improving market was New York’s NeueHouse. The members-only collaborative workspace company signed a 15-year lease for 93,000 square feet at West L.A. developer Kilroy Realty Corp.’s $400 million Columbia Square project, which is under construction at the former CBS broadcast studios. NeueHouse, which provides media and recording rooms as well as offices, is taking all of the space in the former CBS Studio, a major chunk of the office space in the 675,000-square-foot mixed-use project.
“Anyone who had any doubts now sees that this construction is justified,” said Hayley Blockley, a senior vice president at JLL. “Projects that are ready to go are going to lease quickly, and any projects that are in proposal or getting ready to go will be more quick to follow the trend. There are still precious few places for a 200,000-square-foot tenant to lease citywide.”
Hollywood has the largest number of square feet under construction in the county, with 532,000 square feet of office space in development.
The activity is not centered in new buildings, either. Smaller companies are also expanding, many in existing properties. For example, Hollywood’s own Viceroy Media doubled its space at 6725 Sunset Blvd. to 5,416 square feet last quarter.
The prospect of all that new space possibly glutting the market seems not to concern landlords, who raised their asking rents in the quarter. The average Class A asking rate went up 25 cents to $3.73 year to year and up 3 cents from the previous quarter.
“There’s no push-back on the increase in rates,” Tronson said. “People realize that the market is gentrifying and worth the money and they have to pay it.”
With so much potential upside to the once decrepit neighborhood, investment sales are also seeing sky-high numbers as buildings are trading for up to $500 a square foot or more.
“The sale prices I’m seeing out there are 20 percent higher than the previous peak in 2007,” Tronson said. “There’s little product out there to chose from so the majority are off-market deals. The reality is it’s the best time to sell a building in Hollywood that I have ever seen in 20 years in terms of maximizing value.”
– Jacquelyn Ryan
New York co-working space NeueHouse inked a 15-year deal for 93,000 square feet at Kilroy Realty Corp.’s Columbia Square project, the largest lease signed in Hollywood in more than five years.
Bring on the Music Inc., a product of the Silverlake Conservancy of Music founded by Red Hot Chili Peppers’ bassist Flea, bought a nearly 12,400-square-foot building at 4652 Hollywood Blvd. for nearly $5 million, or about $399 a square foot, from M West Holdings.
New York’s American Musical and Dramatic Academy bought a 19,750-square-foot office building at 1641-43 Ivar St. for $10 million, or about $506 a square foot, from Hello and Co. in August. The postsecondary education facility already owns or leases about 100,000 square feet in Hollywood but continues to add space as its student body grows.
Viceroy Media expanded to 5,416 square feet on the fourth floor of 6725 Sunset Blvd. in a five-year deal with landlord Crown Realty and Development.
Owners of the Dream Hollywood hotel under construction on Selma Avenue signed a lease for 3,000 square feet on the ground floor of 1601 Cahuenga Blvd. with landlord MK Investments. The hotelier plans to open a restaurant and nightclub in the location that would be part of the hotel’s offerings. The 10-year deal is valued at more than $2 million.