The Office Market Bounce
After Years of Soaring Vacancy, Firms Big and Small Are Rediscovering the Urban Core
by Kathryn Maese
Boxes are still being unpacked and the conference table has yet to be delivered, but the gallery-like space in the historic Pacific Center is already taking shape.
From their glossy white desks, the 35-person staff of architecture firm NBBJ, which moved into an 8,000-square-foot-space at 523 W. Sixth St. two weeks ago, is already busy at work on a stadium in Korea and designing transit hubs for L.A.'s Expo Line. A well-used foosball table sits in one corner, across from what will soon be the "Lenny Kravitz lounge" - a hip, circular banquette where employees can talk shop as they sip their Starbucks coffee from downstairs.
Partner Scott Hunter said the firm chose to relocate from Marina del Rey to Downtown after a yearlong search. In a way, the firm is returning to its roots.
"We were on Olive Street for about four years," said Hunter, who signed a seven-year lease that will allow the office to expand up to 50 people. "We do urban architecture around the world, and so it's only logical that we should be in a city. The design community and consultants are down here, clients we are working with and are looking to work with are here. I'm thrilled to see the reemergence of Downtown and I'm excited about coming down here."
NBBJ isn't alone. This year, more than 175,000 square feet of office space has been leased to tenants from the Westside and Mid-Wilshire. After more than a decade of lagging behind other office markets in the region, more and more firms are starting to think of Downtown Los Angeles as a viable place to do business.
Indeed, the influx of new residents has brought not only a supply of workforce housing but an attractive slate of amenities including restaurants, bars and retail to once dark streets.
According to a recent office market report from CB Richard Ellis, the vacancy rate has inched down to 13.65%. It's a major shift for a submarket that saw empty commercial space soar to nearly 20% in the early part of the decade.
With increasing demand and little supply coming onto the market, some brokers predict rents will creep higher. The average asking rent for Class A office buildings is $35.70 per square foot per year - an 8.25% increase since the end of 2006. By the end of this year, that jump could reach 17%.
"As long as the surrounding markets in Pasadena and West L.A. stay tight, Downtown will continue to be a viable option for all these tenants," said John Zanetos, a broker at CB Richard Ellis. "I think what makes Downtown attractive is a combination of economics, public transportation, and the fact that there are a lot of options for different size users that you don't find in places like Pasadena or West L.A."
Broader Base
In the 1980s and early '90s, Downtown was flush with corporate names like Arco and Security Pacific, though many businesses eventually fled the city's center following recession and downsizing.
Now, the area has broadened its tenant base to include creative firms like architects and engineers, as well as some of the largest law, insurance and financial companies in the country.
There has also been strong growth in the minority business market, with many Korean, Chinese and Hispanic businesses moving into Class A office space, among them La Opinion and Golden Boy Productions.
According to the CB Richard Ellis report, potential tenants are currently looking at leasing more than 250,000 square feet of space Downtown. Several notable advertising companies are shopping for approximately 80,000 square feet, Zanetos said.
Among the major new arrivals is Psomas, a Westside engineering firm. The company, which has worked on Downtown projects such as Grand Avenue, Staples Center and L.A. Live, is relocating 147 employees to a headquarters in City National Plaza.
The 40,000-square-foot space will be completed later this year, with move-in scheduled for December, said Wayne Smith, regional manager of Psomas' Los Angeles office.
"We want to be in the center of things," he said. "We've been in the San Fernando Valley, moved to the Westside and Santa Monica, but Downtown is a better location. It has come into its own. I don't think there's any question that Downtown is in an upswing."
Psomas will soon get some company when law firm Foley & Larnder moves into City National Plaza. Richard Lasater, a partner with the firm, said 55 employees will make the transition to two floors for a total of 57,000 square feet - with an option to lease two additional floors.
Lasater said the central location allows the company to recruit lawyers from all over the region, and join the long-established legal community Downtown.
"First of all, we feel we're more of a Downtown firm than a Westside firm," he said. "It makes us more a part of the community being Downtown and facilitates our ability to grow and attract lawyers. I know a lot of other firms are moving here."
Checking out the Sights
The Downtown Center Business Improvement District, which is charged with improving the area and recruiting business, is so intent on attracting new office tenants that it is giving bus tours to newly relocating workers.
Last Wednesday, a group of about 25 employees from Foley & Larnder toured the area's attractions, from Staples Center to a new loft development in South Park to the recently opened Takami restaurant and lounge, where the participants met for cocktails overlooking the skyline.
"It really helped people understand what's going on Downtown and made the move more interesting," Lasater said. "Some people needed some prodding and it was helpful in convincing them that this is going to be a good thing. They had no idea what was going on down here."
As more cultural and entertainment options come online Downtown, including the Nokia Theatre at L.A. Live set to open next month, several big companies have set their sights on the area. eMac Lending, which currently has its offices in Mid-Wilshire, plans to relocate its headquarters into 35,000 square feet, said Zanetos. Law firm Goodwin Procter inked a deal for 21,000 square feet in the 601 S. Figueroa St. building; it took occupancy in July.
Early next year, Century City-based Herbalife will move its headquarters - and 400 employees - into 60,000 square feet in the new L.A. Live office complex. The 10-year lease includes major signage atop the five-story Olympic Boulevard building. Anschutz Entertainment Group, L.A. Live's developer, will also move its business headquarters Downtown.
Though new office construction could be several years away, say some brokers, several projects are in the works to bring as much as 1.5 million square feet of space to the market. Maguire Properties is planning a 50-story building at Seventh and Figueroa streets, though a groundbreaking won't occur until the high-rise is 40% to 50% pre-leased, said the company's Peggy Moretti. The 1 million-square-foot building would be the first new office tower in Downtown in more than 15 years.
"I continue to be bullish on the Downtown L.A. market," said John McAniff, a broker with Jones Lang LaSalle, who tracks the local market. "Given the supply constraint and relative value of the real estate infrastructure already in place, rents are going to continue to increase."
Back at NBBJ's space in the Pacific Center, employees are framed against historic brick arches and expanses of modern concrete. Several who hail from New York and Asia are already shopping around for a Downtown abode. Nearly half take public transportation.
"There's a lot of energy here," said Jonathan Ward, a partner at NBBJ, "and to be in the middle of it is important to us."
Source:
Los Angeles Downtown News
Prev
Linear Mode
