LOS ANGELES—This past July, Morgan Stanley Real Estate Investing and Lincoln Property Co. acquired the 950,000-square-foot headquarters campus of engineering firm Parsons Corp. for $320 million. Additionally, NBC Universal signed a 96,000-square-foot lease to move to 10 Universal Plaza in Universal City in 2012. These deals, among many others, show that premier buildings in key L.A. locations are seeing stronger demand from creditworthy tenants "that have identified this period as a historic opportunity to reposition themselves and lock in low rents," according to Grubb & Ellis.
In a third-quarter report, Grubb said the entertainment sector is the foundation of growth in submarkets like Santa Monica, where class A asking rents increased 15.5% in 2011. On the growth side, a number of companies moved into sizeable new spaces in Q3, helping to drive up absorption in West Los Angeles, Tri-Cities and L.A. North.
In the West L.A. submarket, for example, DLA Piper and JP Morgan Chase recently moved into new spaces in Century City with a total footprint of 160,000 square feet between them. USC moved into 30,000 square feet in Playa Vista. Riot Games and Beach Body expanded their footprints in Santa Monica by a total of 60,000 square feet during Q3, in addition to Beats Electronics and Beachmint taking a total of 45,000 square feet in two separate leases.
Although L.A. will remain a bipolar office market in 2012, with vacancy staying stubbornly high, there are pockets of strength and indications that the sector has turned the corner, Henry Gjestrum, senior research analyst at Jones Lang LaSalle, tells Real Estate Forum. "The wave of 'downsizing' and 'right-sizing' by large corporations in Los Angeles over the past three years seems to be waning," Gjestrum says. "Renewals continue to characterize much of the leasing activity, but with tenants holding on to their existing footprint rather than downsizing."
Consequently, he adds, the amount of space coming back to market has dropped dramatically compared to prior years. In 2010, L.A. office vacancy increased by two million square feet. As of Q3 2011, year-todate vacancy actually decreased by 543,000 square feet, reflecting positive leasing activity and mirroring companies' improved economic outlook, says Gjestrum.
In addition, some pockets in L.A., such as the Westside, have seen sudden increases in leasing activity, says Grubb & Ellis' report. Pabst Brewing Co., for example, is relocating its corporate headquarters from Chicago to L.A., and signed 8,101 square feet at Atria West near Century City. United Talent Agency and Playboy leased a total of 112,000 square feet at the old Hilton Headquarters in Beverly Hills. At Kilroy Airport Center in the South Bay, DIRECTV leased 630,000 square feet of office space, with the ability to expand to 720,000 square feet.
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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.
