Still Far From Fully-Leased, Sub-Market Getting Tighter.

THOUGH vacancy rates downtown are t still painfully high by any objective standard, the submarket continued to tighten, posting its third consecutive decline in available office space.

Downtown office buildings sidestepped the dot-corn plague and other wrenching adjustments that hit other local office markets as the vacancy rate in second quarter fell to 19.1 percent, down from 22.5 percent a year earlier.

Asking rents are edging up -- though still a bargain compared with almost any other major financial and business center -- and reached $2.40 a square foot for Class A space, compared with $2.05 a square foot a year earlier, a hefty 17 percent increase, according to Grubb & Ellis Co.

The mood downtown has been improving for several years, but lately seems almost bullish. One frequent topic: the popularity of downtown or downtown-close housing. The success of the Medici, an upper-end apartment housing project just east of downtown, and the announcement of several housing rehabilitation or mixed-use projects, has downtowners talking about a central business district that stays open past 6 p.m.

"You see it already," enthused Brian Ulf, senior director with Cushman & Wakefield of California Inc. "A new Morton's (restaurant) is opening up downtown, you see people walking to the Staples Arena after work to watch a game or concert."

Ulf, like many other downtown supporters, sees a day not too far off when the increased housing supply in or near downtown leads to more restaurants, nightspots and cultural amenities, making the office market just that much more attractive.

Leasing activity downtown was paced in the second quarter with the announcement that architectural firm Daniel, Mann, Johnson & Mendenhall (DMJM) is taking 125,000 square feet at the long-suffering Arco Plaza towers.

The 30-year-old twin black towers, bought in 1986 for more than $630 million by Tokyo-based Shuwa Corp., are widely thought to be worth less than half that now, and in recent years many floors were left fallow in the huge, 2.2 million-square-foot complex.

But the corner may have been turned in the second quarter.

"DMJM coming in is a huge, huge plus for downtown," said Dick Schnell, senior vice president with Colliers Seeley International Inc. "We also see Korn/Ferry International (the headhunting firm) looking at coming back downtown, as well as firms from the mid-Wilshire area, or south of downtown, in cities like Commerce."

Other significant deals downtown include a Lockton Insurance Co.'s expansion and renewal at TrizecHahn Corp.'s 7+Fig building, and an 11.5 year, 65,000-square-foot sublease by law firm Weston Benshoof Rochefort Rubalcava MacCuish LLP at 333 S. Hope St.

Another law firm deal involved McCuthen Doyle Brown & Enersen LLP's 76,000-square-foot lease at 355 S. Grand Ave. in a 10-year deal valued at $25 million. Washington Mutual signed a lease for 26,000 square feet at 350 S. Grand Ave. in a 10-year deal valued at $7.5 million, after landlord concessions.

But the real future for downtown will not be won by building more towers, but by adding amenities, argued Dan Rosenfeld, principal with Urban Partners LLC, a downtown-based real estate development firm. In particular, Rosenfeld said that conversion of "the Cornfield," a 32-acre swath of land adjacent to downtown and Chinatown, into parkland, is healthy for the central business district.

The land had been slated to become warehouses, but community activists pushed for a park -- a battle that appeared to be won in the second quarter, when a deal was struck with the Trust for Public Land, a national land conservation organization, to acquire the 32-acre site.

Downtown

Major Events:

* The Hertz Group purchased the 620,000-square-foot Union Bank Building at 445 South Figueroa for $89 million.

* Wedbush Securities renewed its lease of 113,000 square feet at 1000 Wilshire Boulevard for a 10-year term.

* Daniel, Mann, Johnson & Mendenhall (DMJM) committed to occupying 125,000 square feet at Arco Center, 515 South Flower Street, in a long-term lease estimated at $45 million to $60 million.

* McCuthen Doyle Brown & Enersen LLP leased 76,000-square-foot lease at 355 S. Grand Ave. in a 10-year deal valued at $25 million.

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