Tenants Finding Bargains at East End of Wilshire Market.

MAY BE it's downtown gravity. Real estate leasing activity along the Wilshire Corridor was pulled eastward over the course of the last quarter, with tenants drawn by lower office rents in the region from Vermont Avenue west to LaBrea Avenue

"If you look at the rental rates at MidWilshire, they're still 50 percent below the next best market," said Chris Runyen, vice president at Grubb & Ellis Co. "There's too big of a gap for, people to ignore what that market has to offer."

And given the recent numbers, it appears there are a lot of bargain hunters out there.

The Wilshire Center market tightened last quarter, as vacancy rates fell to 14.8 percent from 16.2 percent in the previous period, according to Grubb & Ellis' most recent market survey. Vacancies were at 17.9 percent for the like period a year ago. Diminishing vacancies were reflected in increased net absorption -- 102,766 square feet were absorbed last quarter, up from 39,293 in the second quarter, a 162 percent increase.

Despite the increased demand, asking rents in the Corridor dropped to $1.30 per square foot from $1.42 in the earlier period.

Runyen said the influx on tenants has come from traditionally price-sensitive sectors -- nonprofits and government agencies.

He expects to see continued movement of entertainment and media clients into the area, a trend he said has been going on for about two years. "They're looking to decrease their overhead or achieve more space for the back," he said. "They can re-create what they have in Hollywood for half the price."

Notable leases last quarter included a 7-year, 11,000 square feet lease signed by Softect Solutions at 3325 Wilshire for about $1 million. Also, the Los Angeles County Department of Health Services signed a 70,000 square foot 10-year lease at 3530 Wilshire.

Investor Jamison Properties made several significant purchases, including buying the Wilshire Serrano building at 3699 Wilshire for $24 million. The sale is notable because of the relatively high price, $80 square foot, according to Runyen. Jamison also purchased the Wilshire Professional Building at 3875 Wilshire for $4.5 million.

With all the activity on the eastern portion of the submarket, Miracle Mile and Park Mile were quiet through the third quarter.

"Leasing activity has been slowing down since summer," said Jerry Snyder, a senior partner at J.H. Snyder Co. "We're doing deals, but fortunately, we're pretty much leased up."

The combined Miracle Mile/Park Mile area vacancy rate was 13.7 percent for the third quarter, just a little below 14.0 percent last quarter. Both those rates, however, are far above the 9 percent vacancy rate during the third quarter a year ago.

Net absorption was 32,654 square feet, a dramatic improvement from negative 170,994 feet last quarter.

Asking rent decreased two cents, to $2.47, in the quarter, the result of limited leasing activity and the availability of sub-lease space. The price is still well above $2.40 in the third quarter of 2000.

"The Miracle Mile is getting cheaper but the rates shot up so quickly," said Runyen. "Customers will probably stay away until rental rates fall below $2 a square foot again."

As has been customary in the past, the Miracle Mile is seen as a second choice market. The typical Miracle Mile customers are in search of the amenities and security of Westside for a much lower price. For that reason, some clients may be eyeing the area in the future.

"Some (tenants) that got into the Westside market when it was a lot more aggressive are now faced with 50 percent increases in rent," said Stan Gerlach, senior vice president at CB Richard Ellis. "They're looking at outlying areas."

"That's a close-in Westside alternative that is still considered to have good amenities and security," Gerlach said of the Miracle Mile. "People today are more conscious about rent than they were a year ago. In today's economy they look at $3 a foot a little differently.

[Graph omitted]

Wilshire Corridor

Major Events:

* The Los Angeles County Department of Health Services signed a 70,000 square foot, 10-year lease leased at 3530 Wilshire.

* The office building housing the Los Angeles County Department of Social Services, 2601 Wilshire Blvd., was sold for $11.7 million to S&R Wilshire LLC.

* Jamison Properties bought the Wilshire Serrano building at 3699 Wilshire for $24 million and the Wilshire Professional Building at 3875 Wilshire for $4.5 million.

* Softect Solutions signed a seven-year lease for 11,000 square feet at 3325 Wilshire.