Tide turns in Mid-Wilshire market's favor.

It signs up tenants at expense of Miracle Mile 

An unusual reversal of fortune occurred along Wilshire Boulevard during the second quarter, with Miracle Mile tenants relocating to Mid-Wilshire instead of the other way around.

The Mid-Wilshire office submarket has for years been among the worst in Los Angeles County, with a vacancy rate hovering above 30 percent and many tenants jumping ship for newer buildings in better neighborhoods farther west.

But a recently completed renovation of the Equitable Plaza building at 3435 Wilshire Blvd. was apparently all it took to lure the State of California, which signed a deal there in the second quarter for more than 60,000 square feet to house the L.A. offices of the Social Services Department.

Mid-Wilshire's gain was the Miracle Mile's loss. The state is vacating its old Social Services offices at Museum Square, 5757 Wilshire Blvd., in order to consolidate at the Equitable building. The move will leave an 80,000-square-foot vacancy at Museum Square.

The state agency's move, along with some other new tenants at Equitable, was enough to create a rare decrease in the office vacancy rate for the Mid-Wilshire district. According to numbers from commercial brokerage firm Grubb & Ellis Co., office vacancy declined to 32 percent in Mid-Wilshire in the second quarter, an improvement from 35.7 percent at the end of the first quarter. The area also saw 84,217 square feet in positive absorption, meaning that much more footage was occupied than abandoned during the quarter.

Asbestos-free magnet

In addition, the California Fair Plan Association, a quasi-governmental agency that provides homeowners' insurance, is also vacating its digs at 4201 Wilshire Blvd. to take up 23,000 square feet at the Equitable building. And OTG Inc., a newly created executive suites advisory firm, took a full floor with almost 22,000 square feet in the building. In all, Equitable Plaza leased 140,000 square feet of space to new tenants in the second quarter.

The 32-story, 1970-vintage Equitable tower is attracting all of this business because of a major renovation finished last year, according to leasing manager Steve Miller with RREEF Management Co. All asbestos was removed and sprinklers were installed throughout the building to bring it into compliance with fire codes. In addition, cosmetic improvements were made.

"I think the people who are looking at this market are pleasantly surprised by the (rental) rates here," Miller said.

Nonetheless, some brokers insisted that Mid-Wilshire is still considered such a bad neighborhood that few tenants other than government agencies looking for bargains are interested in relocating there.

"You've got users, government agencies, that are under scrutiny to cut costs and get more bang for the buck, and that's where Mid-Wilshire is an advantage," said Rick Buckley, a senior associate with CB Commercial Real Estate Group Inc. "If they moved to West L.A. and paid (the going rental rate of) $1.85 a foot, the taxpayers would hang them."

Effective lease rates for Class-A office space in Mid-Wilshire are between $1.05 and $1.15 per square foot per month, Buckley said.

Meanwhile, the Miracle Mile office sub-market suffered a slow spring quarter. While a few smaller renters moved into the market, there were no large signings and, as previously mentioned, one large tenant, the State of California, moved farther east. Net absorption in the Miracle Mile during the second quarter was negative 3,944 square feet, meaning tenants vacated that much more space than they leased during the period. That was a slight factor in the Miracle Mile's office vacancy rate increasing to 18.3 percent, up from 15.5 at the end of the first quarter. The larger factor in that vacancy rate increase was that CB Commercial began tracking the building at 145 Fairfax Ave. as part of the Miracle Mile submarket. That building had previously been considered part of the Hollywood submarket.

Signs of weakness

Other indications of trouble in the Miracle Mile submarket are the recent foreclosures of three office towers - at 5900, 6100 and 6380 Wilshire Blvd. - and the pending loss of another large tenant, The Chubb Insurance Group of Cos.

Chubb signed a deal in July to relocate from its 80,000-square-foot offices at 6500 Wilshire Blvd. and into a new headquarters at 801 S. Figueroa St. in downtown Los Angeles. That deal is not reflected in the second-quarter numbers because it was not signed until the beginning of the third quarter.

John Stern, president of Stern Commercial Real Estate Inc., said things aren't quite as bad in the Miracle Mile district as they might seem. He handles leasing at 6500 Wilshire, and said major tenants have expressed Strong interest in the space being vacated by Chubb. Furthermore, he said he expects existing tenants in the 435,039-square-foot building to renew 100,000 square feet of leases by the end of the year.

"Quality buildings with large blocks of space on the Miracle Mile are scarce," Stern said.

But Stern's own vacancy report shows there are notable exceptions to his rule. For example, 5750 Wilshire Blvd., a Class-A building completed in 1987, remains 29 percent vacant, with 131,469 square feet available, according to Stern's report. And despite a recent $35 million renovation, 6300 Wilshire is 26 percent vacant, with 100,127 square feet of empty space.

"I think the Miracle Mile is going to see some hard times," said Research Director Harry Bateman with Grubb & Ellis. "We don't see too many people moving out, but we don't really see anybody moving in."

Still, even naysayers expressed a belief that business will eventually improve along the Miracle Mile, as long as the entertainment industry continues to grow in Los Angeles.

"The Westside key word is entertainment," Bateman said. "As long as the entertainment business keeps expanding, there aren't many places for them to go. As the Westside begins to fill up, entertainment firms are looking to Beverly Hills and the Miracle and Park Mile areas."