County's office market better in first quarter, but still slow. (Real Estate Quarterly Overview).

L.A. County's office market slouched toward a recovery during the first quarter, but the improvements were spotty and the overall market remained sluggish.

Vacancy rates for office space averaged 16.1 percent, slightly below the 16.7 percent rate for the fourth quarter of 2002, according to Grubb & Ellis Co. Vacancies were essentially unchanged from the 15.9 percent rate logged during the first quarter of 2002.

New occupants absorbed 856,463 more square feet than was put on the market during the quarter, another sign of improvement after negative net absorption of 26,198 square feet during the fourth quarter and 474,901 feet in the like year-earlier period.

There was no indication, however, of any definitive turnaround to the market, which has been in the dumps for more than two years. Instead, landlords are lowering asking rents in order to lure new tenants and keep existing ones. Average asking rents for Class-A space in Los Angeles County fell slightly to $2.42 per square foot from $2.44 in the fourth quarter; they were $2.50 one year ago.

Along Sunset Boulevard in Hollywood, asking rents have fallen 9 percent in the past year to $2.50 a square foot; many lease deals close at $2.25. At the CNN Building at 6430 Sunset Blvd., rents are quoted at between $1.90 and $2.10 a square foot.

Even the bright spots have shadows at the edges.

In Santa Monica, which absorbed 182,046 square feet during the first quarter, the figures include a 105,000-square-foot deal at the former MGM Plaza But the tenant, AOL Time Warner Inc.'s HBO, hadn't yet signed as of last week, according to Darren Senger, a research analyst at Grubb & Ellis. Take away the tentative lease and the positive absorption would be more than cut in half.

Another cloud on the horizon: last year, Rubin Postaer and Associates signed a 10-year lease in Santa Monica at the former MGM headquarters (now Colorado Plaza). The other shoe will drop by November, when the ad agency will complete its exit from the 150,000 square feet in four downtown Santa Monica buildings it now inhabits. Nobody knows whether that space is on the market yet.

"I have a pretty low regard for quarterly numbers. One transaction can change everything," said Matthew Miller, a principal with CRESA Partners.

Split personality

The Hollywood/West Hollywood office market has also shown improvement. Vacancies fell to 18.8 percent in the first quarter from 22.2 percent in the fourth quarter. But the market is split, with West Hollywood driving the lower vacancies -- 13 percent, versus 19 percent for Hollywood proper.

While both areas attract talent agencies and entertainment services outfits, West Hollywood is now seen as the more chic address due to its closer proximity to Beverly Hills.

The attractive rents of West Hollywood and Beverly Hills have drawn in tenants that previously have gone elsewhere, notably Miracle Mile.

"It's not as desirable as West Hollywood or Beverly Hills and those areas are charging low rates' said Jim Kruse, the Grubb & Ellis executive vice president overseeing the L.A. market "If you had a choice, why not move into a better area."

Most deals getting done have been renewals. One of the biggest: Entravision Communications Corp., a Spanish-language TV provider, which consolidated two offices in 40,000 square feet at the Wilshire Courtyard in a 13-year, $16.5 million deal. (The Business Journal is also a tenant at Wilshire Courtyard.)

For landlords in the El Segundo market, which includes Redondo Beach and Manhattan Beach, things are not likely to get much better soon. First quarter vacancy rates rose to 24.3 percent, a slight increase over the previous quarter and more than one percentage point above the year-ago period.

Tenants in the area vacated 260,261 square feet more space than they leased during the quarter, more than any other market in the county, thanks to the fallout from the tech bust as well as space consolidation by defense giants such as Northrop Grumman Corp.

Government spending on homeland security and defense projects may eventually lead to greater leasing activity, but it will take some time.

"We'll likely get a call one night from someone from Northrop Grumman looking for 100,000 feet of space and they'll want it by yesterday," said Steve Solomon of Insignia/ESG. "But that won't happen for months."

One company, Japan Air Lines, is shopping for 15,000 square feet of office space in the area; banking firm Comerica may soon is vacate its offices on La Cienega and West Century boulevards and move to El Segundo; it inherited the space as part of its acquisition of Imperial Bank.

Both may end up checking out the former Xerox industrial complex in El Segundo. The two buildings, which have 195,000 square feet of space, have attracted potential tenants because of their ample parking.

[GRAPH OMITTED]

[GRAPH OMITTED]