If office landlords in the Hollywood-West Hollywood market let out a sigh of relief at the end of the first quarter, the second quarter surely left them with furrowed brows.
After falling a couple of points during the first three months of the year, vacancies rose nearly three points to 14.6 percent during the April-June period. That put the vacancy rate at the same level as second quarter 2009, according to Grubb & Ellis Co.
“There was some pent-up demand that was released six, eight months ago, in early 2010. Companies got the green light to take care of their real estate needs then,” said John Tronson, principal, Ramsey-Shilling Commercial Real Estate Services. “That pent-up demand has really been exhausted, and we’re now back to what is a relatively sluggish market.”
Class A asking rents have remained rather steady over the last 18 months, and dropped just 2 cents during the second quarter, to $3.62 per square foot.
But asking rents are just a starting point these days, Tronson said. After concessions factored in, deals are getting done for much less.
In a sign owners of Class B buildings are becoming more realistic, asking rents of the less desirable office space fell more than 40 cents to $2.98 a foot in the second quarter.
The good news? Situations involving tenants defaulting on leases are on the wane, said Tronson, as is the amount of sublease space on the market. Many tenants are staying put.
“There’s a lot of renewal activity and intermarket cannibalization,” he explained. “There aren’t a lot of people coming in from other areas.”
Office Market At a Glance
Inventory: 4.02 million square feet
Under Construction: 400,000 square feet
Class A Asking Rents: $3.62
- Television studio Reveille LLC, which produces programs including “The Office,” rented a 30,051-square-foot office building at 1741 Ivar Ave. from landlord Doublewide LLC. Reveille took the two-story building for 84 months and will use the space to consolidate offices.
- Sierra Wilcox LLC purchased a 26-unit multifamily property at 920 Wilcox Ave. for $7.25 million from Lion Wilcox LLC. The seller purchased the vacant building in 2009 for just over $4 million after it had gone into foreclosure and then spent $1.5 million on renovations.
- LightIron Digital leased 9,500 square feet of office space on the ground floor at the Cinerama Dome Entertainment Project at 6381 De Longpre Ave. from landlord William Meurer Trust. The postproduction firm is moving its facility from Culver City and signed the new lease for 39 months at close to the $2.35-per-square-foot asking price. The space includes 27 parking spaces and its own driveway. Previous tenant Birns & Sawyer, a film and camera equipment rental company, is consolidating into its North Hollywood showroom.
- A last-minute donation of $900,000 by Playboy magazine founder Hugh Hefner capped off a $12.5 million fundraising drive to protect the 138 acres behind the famous Hollywood sign. The land was being eyed for residential development. The Trust for Public Land conservation group raised $6.7 million in private funds, including donations from celebrities Tom Hanks and Steven Spielberg. State and local funding of $5.8 million were given to the project.