The Westside commercial real estate market, on a roll for the past 18 months, continued its robust bull-run through the first part of 1997 and shows little sign of letting up. Vacancy rates continue to fall, lease rates are edging up and some large-scale development is imminent.
“It’s the strongest market in years,” said Nick Christensen, vice president at CB Commercial Real Estate Group Inc.
Christensen said he “wouldn’t be shocked” to see monthly lease rates for premium Century City office space top $4 a square foot full service gross by the end of the year.
Currently, office space is leasing there at $3.65 per square foot up dramatically from two years ago when rates were in the low-$2 range.
Not everyone shares such a rosy view. As the market tightens and buyers continue to snap up properties, at least one veteran broker said the market may be getting ahead of itself.
“It’s frightening,” said David Lachoff, a senior vice president with Grubb & Ellis Co. “There are some shades of the ’80s here, where people are paying prices based on rosy future projections only.”
As with all markets reaching their top, there is the potential for tenants to be stuck with overpriced leases and investors with buildings they may have to sell at a discount, said Lachoff.
Eighteen months ago, sale prices were averaging $125 per square foot. That average is now approaching the $200-per-square-foot mark, according to Harry Bateman, research director at Grubb & Ellis.
The Century City market became particularly prominent in the first quarter of 1997 with the recent sale of the Century Plaza Towers to an investment partnership managed by J.P. Morgan & Co. for a reported $480 million.
The former owners of the building, a consortium of Japanese investors and U.S. real estate companies, had been trying to sell the property since late 1995. Observers say the time is right to invest in the Westside, where landlords increasingly find themselves in the catbird seat.
“Landlords are beginning to strengthen their position on rents,” Christensen said. “No one is chasing the deal anymore.”
Gone are the days of free rent and luxurious amenities. Back again are prospective tenants lining up at the door.
For example, Christensen said no less than seven tenants are bidding for space on the 19th floor of a Brentwood office building. Christensen also recently closed a deal for the law firm Sands Narwitz for 16,000 square feet of office space at 12400 Wilshire Blvd.
Vacancy rates in most of the Westside submarkets have decreased dramatically over the past year, according to Grubb & Ellis. Beverly Hills is down to just over 11 percent from 16 percent; Brentwood is down to 9.75 percent from 11.6 percent; and Westwood is down to 13.6 percent from 16.2 percent.
The only office submarket showing a significant spike upwards is Santa Monica, where the vacancy rate at the end of the first quarter stood at 11.9 percent, up from 10.2 percent for the quarter-earlier period.
But the uptick appears to be an anomaly, explained by, among other things, the recent move of Citicorp from Santa Monica to Playa del Rey. The move dumped 200,000 square feet of office space onto the Santa Monica market, and though two-thirds of it has already been leased, it has not yet shown up in the Grubb & Ellis figures.
The Art Institute of Los Angeles, meanwhile, recently picked up some of the slack. It signed a long-term lease for 56,000 square feet of space at 2900 31st St. in the Santa Monica Business Park at the end of March.
Landlord Transpacific Development Co.’s Vice President Alan Pyenson said tenants leased 150,000 square feet of space at the park in the first quarter and he expects Santa Monica’s office vacancy rate to dip below 10 percent by the end of the year.
As space in Class A office buildings continues to dwindle, real estate experts say conditions for launching new construction are ripe. Among the major development projects in the works:
The Arba Group is moving ahead with plans to build a 365,000-square-foot entertainment/retail project on a five-acre site in Westwood Village at Weyburn, Tiverton and Glendon avenues. The draft environmental impact report was released this month, and City Councilman Michael Feuer said he will have the plan before the Council before the end of the year.
Also in Westwood, Cinamerica Theaters LP’s plan to build a 3,000-seat theater complex between Gayley and Broxton avenues south of Weyburn Avenue is “definitely moving forward,” said Cinamerica CEO Charles Goldsmith.
Local residents’ groups continue voicing objections to both the Cinamerica and the Arba plans, saying that the projects would inundate the area with traffic and noise pollution.
Transaction Financial Corp., developer of the Arboretum Courtyard in Santa Monica at Olympic and Cloverfield boulevards, has had its plans approved by the city’s architectural review board.
Partner Bill Hammerstein said construction will start on the two-building, 130,000-square-foot project in August “with or without” a signed tenant.
At the Water Garden in Santa Monica, financing is expected to be in place by late summer for the two-building, 600,000-square-foot second phase. Cliff Goldstein, a partner at project developer J.H. Snyder Co., said his company is in negotiations with a number of entertainment tenants. “There is the money out there now to build this on spec,” said Goldstein, “but we prefer not to go that way.”
– A partnership managed by J.P. Morgan & Co. purchases the Century Plaza Towers in Century City for a reported $480 million.
– The Art Institute of Los Angeles leases 56,000 square feet in the Santa Monica Business Park for a new school. Since the beginning of the year, 150,000 square feet has reportedly been leased in the park.
– The first new office building in years is slated to break ground in Santa Monica in late summer. Called the Arboretum Courtyard, the project will include two buildings with a total of 130,000 square feet of rentable space.
– Two large-scale retail/entertainment projects are moving forward in Westwood. The draft environmental impact report on one of the projects, a 365,000-square-foot complex on a five-acre site between Weyburn, Tiverton and Glendon avenues is now in the public comment period.