Note of Caution Resounds in L.A. Real Estate Industry.ON the surface, L.A.'s commercial real estate market turned in a stellar third-quarter performance - far stronger than in any other quarter this year. But behind the impressive numbers are several factors that have caused a growing wariness among lenders, developers, investors and tenants about the nature of the deals being made. Much of the action during the July-September period was being driven by "e-tenants" like eToys, which is said to be negotiating a lease for 300,000 square feet at phase II of the Water Garden in Santa Monica Santa Monica (săn`tə mŏn`ĭkə), city (1990 pop. 86,905), Los Angeles co., S Calif., on Santa Monica Bay; inc. 1886. Tourism and retailing are important, and the city has motion-picture, biotechnology, and software industries. , one of the area's most expensive and high-profile office complexes. But new-media companies have short track records and little or no profit prospects for years to come. And what are these e-tenants using to pay their high rents? Venture capital and initial public, offering proceeds - that is, outside investors' money, not money they've generated from their own operations. Even if only a few high-flying Internet startups wind up crashing, the result could be waves of sublease sublease n. the lease of all or a portion of premises by a tenant who has leased the premises from the owner. A sublease may be prohibited by the original lease, or require written permission from the owner. space flooding onto the market - especially on the Westside. It might not even take a failed enterprise; as illustrated by the glut glut pronounced as rut, slut Vox populi An excess of a service or skilled labor in a particular area. See Physician glut. of available office space downtown, all it takes for vacancy VACANCY. A place which is empty. The term is principally applied to cases where an office is not filled. 2. By the constitution of the United States, the president has the power to fill up vacancies that may happen during the recess of the senate. rates to shoot up is the acquisition by out-of-towners of several large local companies. "I tend to think things are going well, but people are worried about the cycle ending," said Paul Novak, principal with land-use planning firm Novak + Associates. "Everyone is a little more cautious, including the people writing the checks." The tentative nature of the third-quarter action is evidenced by the fact that the average asking monthly lease rate for L.A., County office space was $1.83 per square foot, actually down a penny from the prior quarter. Such stagnation Stagnation A period of little or no growth in the economy. Economic growth of less than 2-3% is considered stagnation. Sometimes used to describe low trading volume or inactive trading in securities. Notes: A good example of stagnation was the U.S. economy in the 1970s. indicates there was enough existing space to satisfy demand without causing a budge in rents overall. "In a number of markets, it doesn't take too much supply to dampen rental rates from rising," said Doug Holte, senior vice president at development firm Hines. Plus, much of the third-quarter deal making involved renewals of existing leased space or relocations to cheaper space in another part of town. Pockets of the county illustrate that it only takes a little new space to increase the vacancy rate. This was true in the third quarter, as new space led to a softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. in Glendale, the Santa Clarita Valley The Santa Clarita Valley is the valley of the Santa Clara River in Southern California. It stretches through Los Angeles County and Ventura County. Its main population center is the city of Santa Clarita. The valley was part of the 48,612-acre (19,672. , El Segundo El Segundo (ĕl sēgŭn`dō), industrial city (1990 pop. 15,223), Los Angeles co., S Calif., on Santa Monica Bay; inc. 1917. Its products include navigation and computer systems, aircraft parts, office machines, telephone apparatus, and , the San Gabriel Valley The San Gabriel Valley is one of the principal valleys of southern California. It lies to the east of the city of Los Angeles, to the north of the Puente Hills, to the south of the San Gabriel Mountains, and to the west of the Inland Empire. and Cerritos. "I think lenders are nervous and the resurgence re·sur·gence n. 1. A continuing after interruption; a renewal. 2. A restoration to use, acceptance, activity, or vigor; a revival. of the office market is not turning out to be as great as everyone thought it would be," Novak said. The biggest exception is Santa Monica, where tenants were scrambling See scramble. to lease space at premium rates. The beach city remains the address of choice for today's most active tenant group, new media. Santa Monica is the scene of an e-tenant feeding frenzy feed·ing frenzy n. 1. A period of intense or excited feeding, as by sharks. 2. Excited activity by a group, especially around a focal point: , as Internet companies eagerly commit to monthly rents north of $3 a square foot and barely completed projects like the Arboretum arboretum: see botanical garden. arboretum Place where trees, shrubs, and sometimes herbaceous plants are cultivated for scientific and educational purposes. An arboretum may be a collection in its own right or a part of a botanical garden. Courtyard For alternative meanings of the word "court", see: Court (disambiguation). A court or courtyard is an enclosed area, often a space enclosed by a building that is open to the sky. and Arboretum Gateway already are almost filled to capacity. With that kind of action, why aren't developers rushing headlong head·long adv. 1. With the head leading; headfirst: The runner slid headlong into third base. 2. In an impetuous manner; rashly. 3. At breakneck speed or with uncontrolled force. to put up a slew of new buildings? Because they've learned, as have commercial lenders Whilst nearly all lenders offer loans on a commercial basis the term commercial lender has differed meanings around the world.
n. An indication of the existence, reality, or presence of something, especially an illness. manifestation (man´ifestā´sh of "irrational exuberance Irrational Exuberance An infamous phrase uttered by Alan Greenspan in 1996 to describe the overvalued market at the time. Notes: Although every word spoken by Mr. ." Just ask the Japanese banks, which poured billions into downtown L.A. commercial real estate during the late 1980s, only to see much of it go down the drain in the '90s. "Office is competing with the glut of opportunities created prior to the slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. ," said Jerold Neuman, a land-use attorney at Allen, Matkins, Leek leek: see onion. leek Hardy, vigorous, biennial plant (Allium porrum) of the lily family, native to the eastern Mediterranean and the Middle East. It has a mild, sweet, onionlike flavour. , Gamble & Mallory. "The market's more competitive than people anticipated going in to projects because there are more on board than capacity to fill them." That's not to say developers and lenders are standing on the sidelines On the sidelines An investor who decides not to invest due to market uncertainty. on the sidelines Of or relating to investors who, having assessed the market, have decided to avoid committing their funds. . They're pursuing projects, but more cautiously. L.A. currently is seeing more renovation than brand-new office construction. And for the new construction being undertaken, lenders are requiring more equity from developers, and developers are requiring more pre-leasing commitments from tenants prior to breaking ground. Landlords countywide coun·ty·wide adv. & adj. Throughout a whole county: found at locations countywide; a countywide search. Adj. 1. are realizing that with the exception of some high-flying Internet companies, L.A. area tenants are becoming increasingly price sensitive. Those who can't afford nosebleed nosebleed, nasal hemorrhage occurring as the result of local injury or disturbance. Most nosebleeds are not serious and occur when one of the small veins of the septum (the partition between the nostrils) ruptures. Santa Monica rents are now moving into the lower-priced, me-too Westside locales, like Culver City Culver City, city (1990 pop. 38,793), Los Angeles co., S Calif., a residential suburb of Los Angeles; inc. 1917. It is a center of the U.S. motion-picture industry, whose roots in the city date to c.1915. Its chief manufactures are rubber products and computers. , Marina del Rey Del Rey may refer to:
"Once Playa playa or pan or flat or dry lake Flat-bottomed depression that is periodically covered by water. Playas occur in interior desert basins and adjacent to coasts in arid and semiarid regions. Vista's underway, it will be the next place to go," said Tom Cherry of Cushman Realty realty n. a short form of "real estate." (See: real estate) REALTY. An abstract of real, as distinguished from personalty. Realty relates to lands and tenements, rents or other hereditaments. Vide Real Property. Corp. While cash-flush e-tenants are driving Santa Monica rents skyward sky·ward adv. & adj. At or toward the sky. sky  wards adv. ,
L.A.'s more traditional tenants are also leasing up space. And
they're looking for Looking forIn the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. basic, not flashy, space. Strong demand from these bargain-seekers is leading to upswings in some of L.A.'s longest-depressed submarkets -- Century Boulevard near LAX, Mid-Wilshire and downtown. The LAX market's office vacancy rate fell 2.6 percentage points in the quarter -- and while that rate, at 25.6 percent, remains the second-highest in the county, tenants have absorbed 111,404 square feet there so far this year. "It's the last true inexpensive space in the South Bay," said Steve Cramer, senior vice president at the Seeley Co. "You will look at Century Boulevard if you're price sensitive and if you have a back-office use and don't have to have a premier location." In downtown, the bargain-seekers are comprised primarily of telecom companies, which are leasing obsolete class-B and C office buildings and installing telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. equipment in them. It's not exactly the prestigious blue-chip outfits that once dominated the downtown scene, but boosters who may have sneered at such tenants years ago are today trumpeting trum·pet n. 1. a. Music A soprano brass wind instrument consisting of a long metal tube looped once and ending in a flared bell, the modern type being equipped with three valves for producing variations in pitch. b. their merits. Telecom switching equipment, however, can't eat at downtown restaurants, or frequent after-hours bars, or spend money in retail shops. For that, downtown is still waiting. Great hopes are riding on the newly opened Staples Center This article has multiple issues: * Its neutrality is disputed. * It may contain original research or unverifiable claims. * It does not cite any references or sources. arena, and the soon-to-come Cathedral of Our Lady of the Angels The Cathedral of Our Lady of the Angels is a cathedral church of the United States in the City of Los Angeles in California. It is the mother church of the Archdiocese of Los Angeles[1] and seat of its archbishop, Roger Cardinal Mahony. , Disney Concert Hall, and various residential projects in the works downtown. But what may be required to bring downtown back to life, especially after hours Adv. 1. after hours - not during regular hours; "he often worked after hours" , is the entertainment/retail project that developers plan to build on 30 acres adjacent to Staples Center. And that's several years off, at the earliest. As for the office market, downtown could use a major new prestige tenant or two, which could serve as a catalyst. "It just takes one or two credible tenants to plant their flag and a whole bunch of others follow," said Peter Adams William Peter Adams, PC, BA, M.Sc, Ph.D (born April 17, 1936 in the United Kingdom) is a Canadian politician, and a former Liberal Member of Canada's House of Commons. He was a Member of Parliament from 1993 until 2005, representing the riding of Peterborough in eastern Ontario. , senior vice president for the Pacific region of Equity Office Properties Trust Equity Office Properties Trust, headquartered in Chicago, Illinois, is the largest owner of office buildings in the United States. It was formed in 1976 by Samuel Zell [1] and in February 2007, was acquired by the Blackstone Group for $23 billion plus the assumption of , a major downtown landlord. One sector in which the strength seems to be more than surface deep is industrial, where tenants are thirsting for space and developers are aggressively moving to provide additional supply. Yet the amount of available space continues to dwindle dwin·dle v. dwin·dled, dwin·dling, dwin·dles v.intr. To become gradually less until little remains. v.tr. To cause to dwindle. See Synonyms at decrease. . The L.A. County industrial vacancy rate, 5.3 percent a year ago, is now at 4.1 percent. Fueling the sector are expansion of trade through local ports, the establishment of major product-distribution centers, and big-box retailers' need for warehouse space. Another trend accelerating in the third quarter was industrial space users' growing preference for consolidating their manufacturing, warehousing and headquarters operations under the same roof. That trend is leading to an increasing number of office/industrial hybrid projects. Yet even industrial activity isn't as frenzied fren·zied adj. Affected with or marked by frenzy; frantic: a frenzied rush for the exits. fren as in past booms, again reflecting a more cautious time. "New construction is going up, but it's not out of control as we saw in the '80s," said Jim Biondi, an industrial broker with Grubb & Ellis.
Los Angeles County Office Market, Third Quarter 1999
Class-A
Total Inventory [1] Vacant Space Vacancy
Submarket (square feet) (square feet) 9/30/99
CBD/Financial District 28,965,072 4,858,161 15.1%
Mid-Wilshire 8,075,518 1,842,388 28.2%
Pasadena 6,414,539 612,369 5.7%
Glendale 5,930,705 863,683 15.6%
San Gabriel Valley 7,967,835 1,839,939 27.2%
Central L.A. Total 57,353,669 10,016,540 17.5%
Beverly Hills 5,568,248 443,171 6.7%
Brentwood 3,243,337 244,713 7.5%
Century City 8,852,055 669,281 7.9%
Hollywood / West Hollywood 3,822,418 751,275 21.8%
Marina / Culver City 4,267,664 294,006 7.6%
Miracle Mile 4,676,240 654,429 10.4%
Santa Monica 6,139,315 357,659 4.2%
West L.A. 3,528,924 302,312 3.2%
Westwood 3,426,528 318,433 9.2%
Westside Total 43,524,729 4,035,279 9.3%
East S.F. Valley 7,393,102 498,577 5.0%
Central S.F. Valley 8,344,693 882,053 9.6%
West S.F. Valley 9,186,045 1,148,467 7.3%
Conejo Valley 5,145,941 530,597 9.6%
Santa Clarita Valley 1,277,806 462,775 39.5%
S.F. Valley Total 31,347,587 3,522,469 11.3%
Los Angeles Airport Area 3,875,483 992,525 17.9%
El Segundo/Manhattan Beach 9,128,396 1,210,155 15.2%
190th Street Corridor 3,297,161 423,217 13.4%
Central Torrance 3,448,439 423,443 12.8%
San Pedro 277,500 23,117 8.5%
Long Beach Freeway Corridor 2,406,398 163,012 4.9%
North Long Beach 993,150 185,128 11.6%
Downtown Long Beach 3,892,654 609,105 19.9%
East Long Beach/Marina 479,257 92,133 N/A
Cerritos 1,078,573 202,562 25.1%
South Bay Total 28,877,011 4,324,397 14.9%
L.A. COUNTY TOTAL 161,102,996 21,898,685 13.6%
Class-A All Classes All Classes
Asking Vacancy Vancancy
Submarket Lease Rate [2] 6/30/99 9/30/99
CBD/Financial District $1.92 18.8% 16.8%
Mid-Wilshire $1.21 24.0% 22.8%
Pasadena $2.27 10.3% 9.5%
Glendale $2.39 14.4% 14.6%
San Gabriel Valley $1.81 20.0% 23.1%
Central L.A. Total $1.87 18.3% 17.5%
Beverly Hills $2.61 9.3% 8.0%
Brentwood $2.62 11.4% 7.5%
Century City $2.71 8.0% 7.6%
Hollywood / West Hollywood $2.06 22.7% 19.7%
Marina / Culver City $2.10 10.8% 6.9%
Miracle Mile $1.93 17.6% 14.0%
Santa Monica $3.01 8.5% 5.8%
West L.A. $2.05 10.8% 8.6%
Westwood $3.09 10.2% 9.3%
Westside Total $2.49 11.5% 9.3%
East S.F. Valley $2.23 8.6% 6.7%
Central S.F. Valley $1.96 12.9% 10.6%
West S.F. Valley $2.10 13.6% 12.5%
Conejo Valley $2.06 12.1% 10.3%
Santa Clarita Valley $1.89 26.5% 36.2%
S.F. Valley Total $2.07 12.4% 11.2%
Los Angeles Airport Area $1.41 28.2% 25.6%
El Segundo/Manhattan Beach $2.23 10.9% 13.3%
190th Street Corridor $1.71 13.0% 12.8%
Central Torrance $1.63 11.4% 12.3%
San Pedro $1.90 13.1% 8.3%
Long Beach Freeway Corridor $1.95 7.1% 6.8%
North Long Beach $1.45 18.4% 18.6%
Downtown Long Beach $1.92 18.9% 15.6%
East Long Beach/Marina N/A 23.1% 19.2%
Cerritos $1.98 7.8% 18.8%
South Bay Total $1.93 14.7% 15.0%
L.A. COUNTY TOTAL $2.05 14.6% 13.6%
All Classes 3rd Quarter Year-to-Date
Net Net Net
Submarket Change Absorption [3] Absorption
CBD/Financial District (2.0) 416,569 244,253
Mid-Wilshire (2.2) 60,424 366,612
Pasadena (0.8) 17,084 86,477
Glendale 0.2 (21,643) 208,833
San Gabriel Valley 3.1 265,517 342,509
Central L.A. Total (0.8) 737,951 1,248,684
Beverly Hills (1.3) 70,419 96,038
Brentwood (3.9) 110,830 69,354
Century City (0.4) 35,948 (43,912)
Hollywood / West Hollywood (3.0) 62,568 111,563
Marina / Culver City (3.9) 18,487 217,357
Miracle Mile (3.6) 164,730 299,367
Santa Monica (2.7) 199,350 168,635
West L.A. (2.2) 51,148 (18,969)
Westwood (0.9) 13,841 (37,225)
Westside Total (2.2) 727,321 862,208
East S.F. Valley (1.9) 61,015 94,467
Central S.F. Valley (2.3) 227,450 417,395
West S.F. Valley (1.1) 32,821 84,945
Conejo Valley (1.8) 60,177 237,788
Santa Clarita Valley 9.7 (9,109) 113,885
S.F. Valley Total (1.2) 372,354 948,480
Los Angeles Airport Area (2.6) 84,756 111,404
El Segundo/Manhattan Beach 2.4 39,599 48,770
190th Street Corridor (0.2) 4,676 30,872
Central Torrance 0.9 (35,984) 65,964
San Pedro (4.8) 13,209 (3,208)
Long Beach Freeway Corridor (0.3) 8,614 143,691
North Long Beach 0.2 (2,491) 15,711
Downtown Long Beach (3.3) 18,749 99,351
East Long Beach/Marina (3.9) 18,456 (7,350)
Cerritos 11.0 (113,006) (81,825)
South Bay Total 0.3 36,578 423,380
L.A. COUNTY TOTAL (1.0) 1,874,204 3,482,752
Asking Asking
Lease Rate [2] Lease Rate [2]
Submarket 6/30/99 9/30/99
CBD/Financial District $1.83 $1.82
Mid-Wilshire $1.16 $1.17
Pasadena $2.11 $2.06
Glendale $2.35 $2.35
San Gabriel Valley $1.62 $1.60
Central L.A. Total $1.74 $1.72
Beverly Hills $2.49 $2.38
Brentwood $2.53 $2.62
Century City $2.54 $2.65
Hollywood / West Hollywood $1.74 $1.78
Marina / Culver City $1.96 $2.05
Miracle Mile $1.94 $1.90
Santa Monica $2.56 $2.60
West L.A. $1.98 $1.98
Westwood $2.84 $2.90
Westside Total $2.22 $2.26
East S.F. Valley $2.05 $2.00
Central S.F. Valley $1.81 $1.80
West S.F. Valley $1.87 $1.87
Conejo Valley $1.92 $1.92
Santa Clarita Valley $1.92 $1.88
S.F. Valley Total $1.89 $1.89
Los Angeles Airport Area $1.24 $1.24
El Segundo/Manhattan Beach $1.91 $1.99
190th Street Corridor $1.49 $1.55
Central Torrance $1.58 $1.56
San Pedro $1.84 $1.89
Long Beach Freeway Corridor $1.60 $1.71
North Long Beach $1.24 $1.25
Downtown Long Beach $1.72 $1.71
East Long Beach/Marina $1.67 $1.69
Cerritos $1.58 $1.88
South Bay Total $1.57 $1.64
L.A. COUNTY TOTAL $1.84 $1.83
(1.)Inventory includes all multi-tenant leased facilities over 25,000 square
feet. It does not include medical facilities, owner occupied buildings nor
government buildings.
(2.)Rental rates represent full-service gross weighted average asking rental
rates on direct space as of Sept. 30, 1999.
(3.)Net Absorption is the change in occupied space for a given period of
time excluding sublet space and renewals.
Due to the transfer of owner/occupied space to competively leasable space
and/or the delivery of new construction in the market, descrepencies may
occur in the relation between vacancy rates and net absorption.
Year-end vacancy rates may include market adjustments made
by Cushman & Wakefield, Inc.
Source: Cushman & Wakefield Inc.
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