LOS ANGELES—Though the local economy has turned a corner, according to multiple market reports, economists and other industry sources, it's still growing at a sluggish pace, with some businesses holding back on hiring. And with the availability in the local office market in a holding pattern, reasonable pricing is prompting some tenants to buy property here rather than lease space.
Stamps.com, for example, purchased Grand Avenue Plaza in El Segundo earlier this year for $13.3 million, and the Gores Group acquired 9800 Wilshire Blvd. in Beverly Hills for $24.3 million.
David Rifkind, principal and managing director of George Smith Partners, tells Real Estate Forum that "non-investment-grade office buildings are still out of favor compared to other asset classes" and are "recovering more slowly. Prices are still good and interest rates are spectacular."
According to Rifkind, the buy-versuslease equation for most companies comes down to occupancy cost. "If the buy/finance/own model places the occupancy cost at or below the lease cost, it will drive more companies to purchase their own buildings," he relates. "Further advantages to buying may include making partners and long-term employees part of the ownership. It would also secure a cap on future occupancy costs, since rental rates are sure to rise."
Steve Solomon, managing director of Jones Lang LaSalle, expects tenants to continue purchasing properties in areas like West L.A. and the South Bay. "If a tenant plans on occupying space for more than 10 years, it can be better off buying a building and depreciating it," he says. In addition, "financing is very attractive, especially owner/user financing when a tenant occupies at least 51% of a building. SBA financing is also available today."
If tenants are looking to lease, says Solomon, rents are constant in the L.A. area with the exception of Santa Monica/ Beverly Hills, where he says they have increased nicely and concessions are down about 10% to 20%. Rents are still rising, he adds.
According to Transwestern senior research analyst Arty Maharajh, the average asking rental rate for the overall L.A. office market in the first quarter of 2012 was $30.09 (annual per square foot, full service).
"Concessions have been relatively flat," Maharajh tells Forum. "The most recent data show a slight sign of rental increase in the Los Angeles metro area, but I think that this is due to ambitious expectations."
Maharajh further expects to see a "firming or rising of asking rents, even if demand is not entirely there yet, and an increase in concessions, where needed, to make deals happen."
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
