Vacancy rates hold steady as building owners cut deals. (Real Estate Quarterly--Downtown).

DOWNTOWN Los Angeles more or less stayed even in the third quarter, with many brokers insisting that the submarket's cultural and entertainment amenities portend a continued upswing.

They say that firms have begun a "reverse migration" of consolidating downtown, compelled by its central location, cheap rents, and budding nightlife.

"The most significant thing that happened in the third quarter was when the architectural firm of Perkins & Will took 34,000 square feet at 617 West Seventh St., downtown," said Todd Anderson, senior director at Cushman & Wakefield of California Inc. The firm, with regional headquarters in Pasadena and Santa Monica, signed a 10-year lease.

Additionally, Wirt Design Group, an interior design firm formerly based in Pasadena, relocated into the same building in the third quarter, taking 5,000 square feet.

But even with the opening of the Cathedral of Our Lady of the Angels and the success of the Standard Hotel's downtown rooftop bar, building owners were not looking at the third quarter as a turning point.

The submarket's 18.5 percent vacancy rate held steady from the previous quarter, but is still above the 17.5 percent of the year-earlier period. Asking rents actually dipped, to $2.29 a square foot per month from $2.30 in the previous quarter and $2.41 a year earlier.

For tenants willing to play tough, tenant reps said downtown building owners are pretty much powder puffs. "I can get you space at $14 ($1.17 monthly, per square foot), for a three year lease, in Class-A space' said Anderson.

Cutting rates

Even some of downtown's grandest buildings cut rates to fill space in the third quarter. "The old Sanwa Bank building (now United California Bank), at Figueroa and Wilshire, placed 250,000 square feet at $16.00 ($1.33 per square foot per month), fully serviced, on the market," said Michael Weiner, senior vice president with Colliers Seeley. The tower, with its marble-clad entrance, is considered one of downtown's premier addresses.

Despite the growth of amenities and the gains that brought vacancies to 17.5 percent a year ago, downtown has suffered from consolidation and business failures. As a result, large chunks of space keep appearing on the market, such as 150,000 square feet at Library Tower, at 633 W. Fifth St., vacated by Arthur Andersen.

And downtown dodged another vacancy bullet in the third quarter when the Los Angeles Unified School District extended by 39 months a lease on 225,000 square feet of space in the KPMG Tower at 355 S. Grand Ave. The school district has purchased the Beaudry Center Building, just across the 110 Freeway from downtown, but has postponed moving its staff in the KPMG Tower as a result of the renewal.

Despite the occasional large chunk of space coming back on the market, the growth of the residential and cultural side of downtown, and some significant deals, have created an impression that the submarket remains poised for further tightening.

In fact, residential growth has helped take some of the office space off the market. There are roughly 20,000 housing units--if all goes as planned--slated to appear downtown in the next couple years, mostly in converted office and manufacturing space.

Public moves

Among firms that have made the move downtown in the third quarter was the California Endowment, a non-profit health care foundation that decided to build a 128,000 square feet structure next to the old Terminal Annex postal building downtown, near Union Station.

"They are moving downtown from Woodland Hills; they are well endowed, and they are saying where they want to be is downtown Los Angeles," said Dan Rosenfeld, partner at developer Urban Partners. "It is the classic reverse of the out-migration we saw for 30 years. Now, foundations and businesses and people are coming back to the core."

Rosenfeld also pointed to a new 91-unit condominium-for-sale project, started at the corner of Ninth and Flower Streets downtown. "This isn't a loft apartment project. It is a for-sale project. It will be interesting to watch," said Rosenfeld.

Also in the third quarter, the LAUSD decided to build a new Performing Arts High School on the old Ft. Moore site, the bill overlooking downtown from the east (and site of the old school district headquarters).

"This is important," said Rosenfeld. "In Manhattan, you have families moving into Tribeca because of the quality of the schools. This new school could serve as a magnet, and people will move downtown so their children can go to this school. It is one more step into turning downtown into a 24/7 community."

Major Events:

* Fiduciary Trust International of California inked a sublease for 17,600 square feet BP Plaza at 444 S. Flower St. The deal had a value of $3 million.

* Law firm Cotkin & Collins signed a seven-year sublease for 24,000 square feet from executive search firm Heidrick & Struggles at One Cal Plaza. The "as is" transaction was worth about $2 per square foot per month.

* Heidrick & Struggles took 14,000 square feet at Library Tower, at 633 W. Fifth St. in a sublease from Mercer Human Resource Consulting.

* JP Morgan Chase & Co. took a $2.5 million sublease for 17,200 square feet of space from Wells Fargo Bank at the Garland Building, at 1200 W. 7th St.

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