Dot-Com Companies Make A Hot Market Even Tighter.

SANTA Monica and Culver City dominated the Westside's real estate activity during the fourth quarter - fueled primarily by Internet and media-related companies.

Much of the action during the October-December period involved tenants rushing to lease premium space in new projects, pushing rental rates higher.

Long the priciest market in L.A. County, the Westside saw its average monthly office rental rate rise to $2.49 a square foot, up from $2.47 for the previous period, according to Cushman & Wakefield Inc. Brokers expect Westside office rents to continue their northward climb throughout 2000.

"The Westside is just getting inundated with these (Internet) companies," said Chris Houge, senior managing director of Insignia/ESG, who estimates that rents will rise another 12 percent in 2000.

Tony Balbona, a vice president at Cresa Partners, agreed that a rise in rents is likely, and he downplayed concerns that Internet tenants might go bust and leave commercial landlords in the lurch.

"Landlords are protected with their letters of credit," Balbona said, adding that even if an Internet tenant were to unexpectedly vacate space, other Internet tenants would eagerly move in.

Balbona cited Yahoo Inc.'s purchase of GeoCities last year, after which some 300 GeoCities employees were relocated from Santa Monica to Santa Clara. GeoCities vacated 50,000 square feet of office space in August and, by Sept. 1, according to Balbona, the space had been leased and occupied by Internet firms Event4ll.com and Internetconnect.com.

Among the Westside submarkets, Santa Monica was the hottest in the fourth quarter, with office tenants moving into 155,148 more square feet of space than they vacated, Cushman & Wakefield reported. That pushed the submarket's vacancy rate down to 3.2 percent, less than half its 6.9 percent level in the third quarter.

Among the key deals was Universal Music Group's lease of the entire 192,000-square-foot Arboretum Gateway project, which is still under construction but slated for completion this quarter.

At the recently completed adjacent Arboretum Courtyard project, IBM Interactive - a newly formed subsidiary of International Business Machines - leased 52,645 square feet of space, taking the smaller of the project's two buildings.

Across the street at the Water Garden, Internet services agency USWeb/CKS subleased the 150,000 square feet that had been vacated by Candle Corp., which is now in El Segundo.

Yet another big Santa Monica fourth-quarter deal was eToys' lease of 150,000 square feet of office space, with an option for the other 150,000 square feet, at Kilroy Realty's Westside Media Center.

As for the Westside's other fourth-quarter hot spot, Culver City, most of the action was at the Howard Hughes Center. It was there that Arden Realty closed a deal to develop a new 165,000-square-foot, build-to-suit project for Univision Communications Inc.

Westside building sales during the quarter included Teachers Insurance and Annuity Association's sale of the 285,000-square-foot Wilshire Bundy Plaza in Brentwood to Lowe Enterprises for $55 million, and Orix USA Corp.'s sale of the 88,000-square-foot 2001 Wilshire Building to Arden Realty for $20 million.

In the retail sector, the Westside is increasingly being dominated by vertically integrated national chains, like the Gap and J. Crew.

Because their profit margins are fatter, they can better afford the high Westside rents, said Matthew May, executive vice president of Sachse Commercial Inc.

And increasingly, those retailers are moving onto the Third Street Promenade.

"Generally, mall rents are higher than street rents. But Third Street Promenade's rents have gone up," May said. "When I handled the Barnes & Noble deal four years ago, Third Street was charging $2.25 per foot. Now, it's up to $7 to $9 per foot on the street and mall rents are about the same. Retailers feel the need to be there on Third Street, and the national chains can afford it."

Westside

Major Events:

* Internet retailer eToys leased 150,000 square feet with an option for another 150,000 square feet at Kilroy Realty's Westside Media Center in Santa Monica.

* Arden Realty inked a deal to develop a 165,000-square-foot, build-to-suit project for Univision Communications Inc. at the Howard Hughes Center.

* Universal Music Group leased the entire 192,000-square-foot Arboretum Gateway office project in Santa Monica.

* Teachers Insurance and Annuity sold the 285,000-square-foot Wilshire Bundy Plaza office building at 12121 Wilshire Blvd. in Brentwood to Lowe Enterprises for $55 million.