Downtown L.A. office rental rates continue to fall.

Average annual rate drops $2 a foot in just 3 months

The good news for downtown Los Angeles office market is that vacancy rates declined in the third quarter of 1993. Office rental rates also continued to decline, which downtown landlords and brokers hope will attract new tenants and speed up a recovery in that market.

Although competing brokerage firms reported somewhat different office vacancy rates for downtown L.A., as is typical, all agreed on at least one thing -- vacancy was lower by the end of the third quarter than it was at the end of the second quarter of 1993.

Hayden Eaves, downtown broker with Cushman & Wakefield of California Inc., reported that direct vacancy dropped 0.3 percent in the third quarter to 19.9 percent from 20.2 percent.

Grubb & Ellis Co. reported the vacancy rate to be 20.1 percent at the end of the third quarter, down only slightly from the 20.17 percent recorded at the end of the second quarter.

The most significant factor for the downtown L.A. office market seems to be its continually falling rental rates. Brokers said they hope the lower rates will attract tenants from other office markets and will effect a turnaround in downtown.

According to statistics provided by commercial brokerage firm Julien J. Studley Inc., the average per square foot annual rental rate in downtown L.A. declined more than $2 per square foot in the third quarter, to $21.23. That compares to $23.33 for the second quarter, according to Studley.

Lower rental rates are only one selling point of downtown L.A., according to downtown brokers. Other benefits that make downtown attractive to potential tenants are the newly expanded convention center, the recently re-opened Central Library, easy access to Metro Rail and several freeways, and finally, a high concentration of high-quality office space.

These are the factors that leading downtown brokers are touting to help firm up the consistently soft downtown L.A. market, which has been plagued by an overabundance of space in recent years.

"We should see vacancy rates continue to decline," said Stephen Bay, a broker with the downtown office of Studley. Not much new space is being anticipated in downtown L.A., according to Bay, and that should help vacancy rates edge downward.

Another positive sign for the future of the downtown market is the anticipated move by the Los Angeles Times. "If the Times deal comes through, that will be a huge boost for downtown," said Hayden Eaves. The L.A. Times, if it decides to vacate its present location downtown and move into leased space downtown, could absorb up to 400,000 square feet of space that would otherwise flood the market and up vacancy yet again.

Also, many downtown brokers said they are hoping the tenant exodus from Mid-Wilshire to downtown L.A. will continue. "A number of Mid-Wilshire firms are still coming downtown," said Steve Marcussen, a broker with the downtown office of Cushman Realty Corp.

Among those migrating tenants are AIG Inc., a Mid-Wilshire-based insurance company which recently leased 105,000 square feet at the 777 Tower at Citicorp Plaza in downtown L.A.

Another large Mid-Wilshire-to-downtown relocation deal recently completed involved insurance company Marsh & McLennan Inc. and affiliated consulting firm William M. Mercer Inc. moving from their Mid-Wilshire homes at 3303 Wilshire Blvd. to the 777 Tower in downtown. The two companies are taking a combined six contiguous floors in the 53-story building for a total of 120,000 square feet.

Among the most significant third-quarter events for downtown L.A. commercial real estate was the announcement by Gov. Pete Wilson that the state plans to consolidate various state agencies from around the county into downtown Los Angeles. Eventually, the state plans to occupy nearly 2 million square feet of office space in downtown. Marcussen predicted that this consolidation would be a tremendous boon to that market.

Other notable developments in the downtown market during the third quarter included:

* Groundbreaking on a 63,000-square-foot office building that, once completed, will house the Los Angeles Area Chamber of Commerce.

* Acquisition of the Figueroa Plaza office towers by a pair of investment groups headed by Louis Gonda.

* Subleasing of 39,300 square feet of office space at 201 N. Figueroa St. by New York-based law firm Rogers & Wells to the Los Angeles County District Attorney's Office. Rogers & Wells, in turn, leased 43,000 square feet of office space at the former offices of defunct law firm McKenna & Fitting at 444 Flower St.

* Deeding back of the 376,212-square-foot office building at 911 Wilshire Blvd. to lenders by Trammel Crow Equity Partners II.

* Leasing of 41,500 square feet of space at the Pacific Financial Center at Sixth and Flower streets by General Bank. That company is relocating its headquarters and consolidating various local operations to the Pacific Financial Center, including a retail branch on the building's ground floor.