Westside office market still slow but vacancy dips in third quarter.

Commercial lease deals were small, few and far between in the upscale Westside office market during the third quarter, but a few building sales occurred.

Despite the slump in leasing activity, the Westside's third-quarter office market performance was slightly better than it was in the second quarter, with the vacancy rate slipping to 19.8 percent, down from 20.3 percent in second quarter, according to commercial brokerage firm Grubb & Ellis Co.

As a sign that the upscale Westside market is recovering a bit from its dismal second quarter -- considered the worst quarter since the Persian Gulf War in first quarter 1991 -- "net absorption" rose.

Net absorption, which measures the amount of space tenants moved into minus the amount of space tenants vacated, increased to a positive 187,600 square feet for the third quarter, up from a negative net absorption of 100,000 square feet in second quarter.

Howard Sadowsky, executive vice president of commercial brokerage firm Julien J. Studley Inc., described the quarter as involving "a lot of soul searching and downsizing."

Like many Westside brokers interviewed by the Business Journal, Sadowsky said several office deals are in the works, but deals are continuing to take longer to close.

The biggest lease of the third quarter -- and the biggest lease deal in Westwood in three years -- was Oppenheimer & Co.'s decision to move two blocks east by leasing 50,000 square feet of space on the two top floors of the 25-story Wilshire West Plaza at 10880 Wilshire Blvd.

That building, currently called MAXXAM Tower, after the former anchor tenant, is scheduled to soon be renamed Oppenheimer Plaza. The existing MAXXAM sign on top of the building is scheduled to be replaced by an Oppenheimer sign.

Oppenheimer, a New York-based securities brokerage, canceled its 10-year lease at 10940 Wilshire Blvd. after five years because the company was paying above current market rental rates, according to real estate sources.

Real estate sources said Oppenheimer's planned move, which is expected some time next year, could be the start of a Westwood office shuffle, noting that several tenants in the area are eyeing new space nearby.

Other than the Oppenheimer lease, most Westside lease transactions during the third quarter were under 25,000 square feet, said brokers.

Grubb & Ellis defines the Westside office market as encompassing nine submarkets: Beverly Hills, Brentwood, Century City, Miracle/Park Mile, Hollywood/West Hollywood, Marina del Rey/Culver City, Santa Monica, West L.A. and Westwood.

West L.A. fared the best of all those office submarkets in the third quarter. It posted 100,000 square feet of positive net absorption during the period. Santa Monica fared the worst, posting 35,500 square feet of negative net absorption, according to Grubb & Ellis.

A handful of building sales also occurred during the third quarter, most which were transacted for 50 percent of replacement value, said brokers.

The biggest sales of the quarter included the following:

* Kennedy-Wilson Inc., the publicly held real estate auction company, purchased the six-story Urban West Plaza at 520 Broadway in Santa Monica for its new headquarters. The 108,093-square-foot building was purchased from the Bank of America, which had taken the building back from the previous owner in February.

* Sierra Properties Inc., an affiliate of First Credit Bank, purchased the two-building complex at Sunset Boulevard and Doheny Drive in West Hollywood, where Sierra Properties has a major presence.

Sierra Properties bought the buildings from Pac Prop Inc., a subsidiary of First Chicago Corp., which had foreclosed on the 92,000-square-foot and 143,000-square-foot buildings two years ago.

In other news during the third quarter, Litton Industries Inc., a defense-related and electronics company, decided it would not move out of its Beverly Hills headquarters complex.

In July, the company had announced it would split the corporation into two businesses and relocate its headquarters to the west San Fernando Valley.

In late September, however, the company announced it would move only 200 of the current 325 workers to Woodland Hills and keep the rest at its existing Beverly Hills headquarters building at 360 N. Crescent Drive, near Santa Monica Boulevard.

Over in Hollywood, the controversial Hollywest mixed-use development project at Hollywood Boulevard and Western Avenue was put on hold during the third quarter, and remains on hold.

L.A. City Councilwoman Jackie Goldberg delayed council action on that project while she studies ways to build only the commercial portion of the project.

Community groups are opposed to giving Hollywest developer Ira Smedra any more public money because he is delinquent on existing loans and has not secured any private-sector financing for the project.

Elsewhere around the Westside, the Culver City Council approved Sony Pictures Entertainment's 1 million-square-foot expansion plan; despite community opposition, the Beverly Hills City Council decided to help fund an $80,000 feasibility study for a proposed Westside monorail; and apparel wholesalers in the California Mart continued to express interest in relocating from downtown L.A. to the Water Garden in Santa Monica.