Condo conversions could lead to hike in office rental rates.

A burst of small- and medium-sized leases two Hollywood buildings brought an increase in net absorption and modest tightening in availability for the last quarter of 2003.

The Hollywood/West Hollywood vacancy rate in the October-December period was 19.3 percent, down from 19.7 percent in the third quarter and 22.2 percent in the year-earlier period. The slight decrease in availability came as 39,000 more square feet were taken off the market than were returned.

While much of the leasing activity was done at below-market rates, less available space still contributed in part to a modest upward tick in asking rents during the period. Quoted rates for Class-A office space rose to $2.35 in the fourth quarter from $2.33 in the previous three months, but were still well below the year-ago rate of $2.42.

John Tronson, a principal with Ramsey-Shilling Commercial Real Estate Services, predicted Hollywood's low rents, skewed by the more expensive West Hollywood market included in Grubb & Ellis Co.'s data, would rise by summer.

"I've seen three times as many tenants as in the third quarter," Tronson said. "And the supply is decreasing because developers are converting buildings to condos. That's space that will never come back on the market. When supply and demand starts to turn in favor of the landlords, they figure it out pretty quickly and they raise prices."

Media firms, which left Hollywood in droves a generation ago, led the activity as they started to return in a series of smaller deals.

Production and post-production offices were actively courted by two developers that recently completed large office renovation projects.

Paramount Contractors and Developers' recently re-opened buildings at 6464 and 6565 Sunset Boulevard were among those that saw leasing activity by entertainment companies rise, said Brian Folb, a principal at Paramount.

The 11-story, 104,000-square-foot building at 6464 Sunset was about 90 percent occupied at the end of the fourth quarter after a spate of two- and three-year leases in the 3,000-square-foot range. Most of the deals were done at a below-market rate of about $2 per square foot per month, he said.

Casting agency Lieberman/Patton leased 3,000 square feet and HBO Productions took 3,000 square feet for a production office, Folb said. Hollywood Coffee signed for 1,500 square feet on the ground floor.

Larger deals were struck at 6565 Sunset Blvd., where Fox Entertainment leased a 15,000-square-foot floor for post-production of "On the Air with Ryan Seacrest," which will be taped in studios at Hollywood & Highland, a move Folb said attracted other media tenants.

"Once we broke the ice and got Fox in there, we got a lot of action with entertainment people coming in," he said.

Graphic effects company Arnson Communications Inc. leased 6,000 square feet, several smaller tenants leased the bulk of a single floor in chunks of 1,000 to 2,500 square feet. Also signing on in the fourth quarter was New Market Entertainment, a music division of Raw Entertainment, which leased 2,000 square feet on the second floor for a production office.

About a third of the 79,000-square-foot building remains available, Folb said, adding that he is negotiating leases for 15,000 square feet for a ground floor restaurant and club and rooftop bar.

At 6430 Sunset Blvd., home of the local operations of CNN, landlord Meringoff Equities signed several new leases and lease extensions, said Rob Langer, Meringoff's managing partner. Most of the deals were struck in the $1.90-per-square-foot range.

New tenants at the CNN building included Childrens Hospital Los Angeles, which leased 7,500 square feet. M.S.C. Music Entertainment, a new label spun off of hip-hop record company Priority Records, leased 5,500 square feet and Legacy Entertainment leased about 5,000 square feet.

Also in the CNN building, Laufer Media Inc., publisher of teen magazines Bop and Tiger Beat, expanded its 3,500-square-foot space with a three-year deal for an additional 2,000 feet, said president Scott Laufer.

Major Events:

* The mixed-use Hollywest Promenade, at the northeast corner of Hollywood Boulevard and Western Avenue, was sold in pieces for a combined $46.1 million.

* Hollytree Partners LP paid $9.2 million to assemble a site at Hollywood and Western for development of a $27 million mixed-use project.

* Paramount Contractors and Developers leased 23,000 square feet to media tenants in a series of small deals at 6565 Sunset Blvd., including 15,000 square feet to Fox Entertainment for a post-production facility.

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