Rise in vacancies belies rapid loss of commercial buildings.

OFFICE space continues to be converted to residential use in Hollywood, leading to some concerns in the creative community about a supply shortage.

While second-quarter vacancies rose to 10.4 percent from 8.3 percent in the previous three months, according to Grubb & Ellis Co., they remained well below the 20.8 percent level in the year-ago period.

Asking rents hit an average of $2.46 per square foot for Class-A space, up 1 cent from the previous period and 15 cents from a year earlier.

John Tronson, a principal with Ramsey-Shilling Co., said that rents will have to rise further before developers build more office space.

"You need $3 a square foot to get commercial developers to do that," Tronson said.

In a typical transaction, Look Effects Inc. took over the entire 6,400-square-foot third floor of the El Capitan Theatre on Hollywood Boulevard, signing a five-year lease for $2.40 per square foot. Tronson said that asking rent rate is the highest Ramsey-Shilling has signed in the El Capitan building.

For quality creative office space, it's difficult to find anything in Hollywood for less than $2.15 per square foot triple-net, Tronson said. (In a triple-net arrangement, tenants are responsible for property taxes and insurance, various common expenses and utilities.)

"There's very, very little left of that product out there," Tronson said, adding that entertainment tenants must settle for conventional office space instead of the preferable old warehouses or other vintage buildings.

In the Hollywood Community Plan now being put together by the city's Planning Department, a proposal would give density bonuses to developers. "We'll be working with the city to include that proposal," said LeRon Gubler, president of the Hollywood Chamber of Commerce. "Certainly I'd be supportive of it."

Office refurbishment 

One development that will put about 90,000 square feet of office space back on the market is the property at 1800 N. Highland Ave. CIM Group purchased the building in the first quarter and will convert it into Class-A space scheduled to hit the market in about a year, said Martin McDermott, an associate at Grubb & Ellis.

Meantime, there's high demand for office space.

Paramount Contractors and Developers leased the 15,000-square-foot ground floor of 6565 Sunset Blvd. to SAE Institute. The space was leased at $2.25 per square foot for 10 years and includes a multi-million dollar refurbishment, according to Brian Folb, a principal at Paramount.

The company also leased the third floor of the building to 51 Minds Entertainment LLC--at a similar price but for three years. Additionally, Outlook Entertainment leased 8,137 square feet at 6725 Sunset Blvd. for $2.15 per square foot.

Two lease deals took place in buildings that are in the middle of the Hollywood strip, long considered a no-man's land, Tronson said. Tenants are seeing these places as fixer-upper opportunities in a market with limited choices.

Behavioral Resources leased 6,000 square feet at 6411 Hollywood Blvd. from Robertson Property Group at $1.20 per square foot. And TV production company Eye Boogie leased 5,000 square feet, also from Robertson Property, at 6425 Hollywood Blvd. at $1.50 per foot. The building was known as Warner Pacific Theater.

Another deal involved the purchase of a commercial condominium, similar in concept to residential condos but for office space. The idea, long popular in other cities, is just taking hold in Los Angeles.

Camera rental company Burns & Sawyer purchased the 9,200-square-foot office condo at 6311 De Longpre Ave. for $2.45 million from Al Siniscal. The condo is inside a parking structure owned by the Community Redevelopment Agency and next to the ArcLight Cinerama Dome Entertainment Center.

There were also several mixed-use projects in the works during the second quarter.

At 1645 Vine St., Kor Group has a 96-condominium complex under way with 152 parking spaces and retail on the ground floor. The complex will replace an office building that was never fully occupied.

At 5555 Hollywood Blvd., Bond 5555 Hollywood LLC plans to begin construction next year on a 108-unit apartment building with 10,000 square feet of retail. A Whole Foods Market that was planned for the project will no longer be included.

And John Laing Urban Development will build a 180-unit, seven-story condominium complex with 14,000 feet of ground floor retail space on La Brea Avenue south of Hollywood Boulevard. The project will break ground in the first quarter of 2006.

Major Events:

* Paramount Contractors and Developers leased out the 15,000-square-foot ground floor and third floor of 6565 Sunset Blvd. for $2.25 a foot. SAE Institute took the ground floor for 10 years, while 51 Minds Entertainment LLC took the third floor for three years.

* Outlook Entertainment leased 8,137 square feet at 6725 Sunset Blvd. for $2.15 per square foot.

* Behavioral Resources will lease 6,000 square feet at 6411 Hollywood Blvd. from Robertson Property Group at $1.20 per square foot.

* TV production company Eye Boogie will lease 5,000 square feet from Robertson Property at 6425 Hollywood Blvd. at $1.50 per foot.