L.A. office prices still about 50% below 1990 level.

Despite the strong recovery of the real estate market, prices for office buildings remain far below their 1990 peak even on the Westside, where buildings are selling for about half their 1990 purchase prices.

In the first comprehensive survey of its kind, data compiled for the Business Journal by Cushman & Wakefield Inc. shows that prices rose dramatically last year, but remain about 50 percent below 1990 levels in most markets.

"We're obviously still a far way off from the prices we reached in the late 1980s and 1990," said Mike Rago, manager of research services for Cushman & Wakefield. But he added that "the trend is obviously there" to hit those prices again within the next few years.

Downtown office properties, for example, sold for an average of $157 a square foot in 1997. That's up 99 percent from 1996. but still more than half the $337 they fetched in 1990.

Even in the hot Westside office market, which saw several trophy towers trade hands last year for more than $300 per square foot, buildings on average sold for $182. That's almost half of their 1990 purchase prices.

In the past, public information about office sale prices has been largely anecdotal. To get a clearer picture of the market, the Business Journal asked Cushman & Wakefield to analyze prices for office buildings 50,000 square feet and larger and built after 1985 in the four major office submarkets - downtown, Tri-Cities, Westside and the South Bay. The information did not take occupancy or the quality of buildings into account.

The data shows that, on average, office prices for downtown, the Westside and Tri-Cities are down almost 50 percent from 1990. In the South Bay (for which 1990 figures were not available), prices were 33 percent below 1991 rates.

The research also shows that investors spent $766 million last year to buy office buildings in the four primary submarkets. That's up 5 percent from 1996 - and a whopping 600 percent from 1994, when just $109 million in properties traded hands.

"You're only going to see those prices go higher in 1998," said Bob Safai, a partner at the West L.A.-based commercial brokerage Madison Partners. "There's such a scarcity of buildings out there for sale that anything that goes to market is going to get bid up."

The Westside led the county last year with three trophy properties - Fox Plaza, Landmark Il and MGM Plaza - each selling for more than $300 per square foot. But the average was considerably lower- $182 per foot, about a 30 percent hike from 1996.

Downtown and the South Bay, however, posted the most dramatic spikes in activity last year. The South Bay, which is led by the tight El Segundo and Manhattan Beach office markets, reported that both the volume and total value of buildings sold last year almost quadrupled from 1996. The average per-square-foot purchase price hit $64, up more than 10 percent from 1996.

The prices are being driven by office leasing activity. The class-A office market in El Segundo and Manhattan Beach posts a drum-tight vacancy rate of 4 percent, according to Bill Bloodgood of CB Commercial Real Estate Group Inc.

Not surprisingly, rental rates for class-A space in those South Bay cities shot up 20 percent to 30 percent last year, hitting $2.15 per square foot.

Most real estate professionals believe the South Bay's rising fortunes owe much to the Westside, where class-A rents are above $3 per square foot.

Downtown, by comparison, is still trying to fill the excess space created by over-development in the late 1980s and corporate departures during the recession. Buildings sold in 1997 reported an average per-square-foot price of $157, down 53 percent from their 1990 sale prices.

But downtown has made some impressive gains in recent years: The average per-square-foot sale price last year was up 99 percent from 1996.

The Tri-Cities showed the most sporadic activity of all the markets, as spikes and slides in the sales activity obscured any trends. Analysts said the Tri-Cities is a small office market that does not see as much turnover as other markets, so the sales averages do not accurately reflect the price value.

Cushman & Wakefield tracked the sales with its investment services group and verified the data with the help of Comps InfoSystems Inc. Bankruptcy-forced sales were eliminated from the data pool.

Richard Plummet, a director at Cushman & Wakefield's investment department, noted that averages do not reflect nuances within each office market.

Back in the late '80s, markets such as Mid-Wilshire and downtown Long Beach had stronger leasing activity than they do today, he said.

L.A. Office Prices

Prices per square foot by submarket, 1990-1997(*).

Year       Downtown       South Bay       West LA       Tri-Cities

1990       $336.54              NA        $359.67          $217.86
1991            NA          $96.98             NA           245.45
1992            NA          155.87         158.02           200.06
1993        114.88           69.93          73.76           190.13
1994        114.41           45.75          92.77            83.31
1995         59.17           82.40         123.01           186.19
1996         79.41           57.63         140.75           136.08
1997        157.03           64.33         182.45           143.98

* Prices for several areas were not available in 1991-1992

Source: Cushman & Wakefield

Their current low sales prices drag down the current average much more than in the late '80s.

Compared to other cities such as New York and San Francisco, L.A. is a comparative bargain for national and international investors. The region is one of the last areas of the country to emerge from the recession, so its office prices accordingly lag behind the more mature markets on the East Coast and Northern California.

The good deals on the Westside are already harder to find, said John Moe, vice president at William Wilson & Associates. He said that the pace of his investment advisory firm's acquisitions has slowed down in recent months, as real estate investment trusts have discovered L.A.

"Now the REITs are outbidding us on projects - and, in my opinion, often overpaying," he said.