The downtown L.A. vacancy rate inched modestly higher in the third quarter, reaching 18.4 percent, while at the same time asking rents rebounded to $3.22 a foot, according to research compiled by Jones Lang LaSalle Inc.
The increase in asking rents – 17 cents higher than the second quarter average and 7 cents above the year-earlier period – marked a flight toward activity, said Arty Maharajh, vice president of research at Cassidy Turley Inc., as buildings that were making deals were able to command higher prices despite an abundance of space on the market.
“Leasing activity has been (vibrant) and sales activity is very hot,” he said. “That was the talk of the quarter.”
Among the period’s biggest lease deals was the Security and Exchange Commission’s signing for 58,000 square feet at 444 S. Flower St. for an undisclosed amount.
While net absorption continued to head in the wrong direction – nearly 90,000 square feet came back on the market in the third quarter, bringing the year-to-date tally to more than 160,000 square feet – downtown has all of a sudden proved very attractive to investors.
Leading the activity was the $858 million sale of the 2.8 million-square-foot City National Plaza, bought by CommonWealth Partners. CommonWealth, headquartered in the complex, has asserted itself locally this year, plunking down $305 million in June for 1888 Century Park East as well. The City National Plaza purchase brought CommonWealth the twin 52-story office towers – known as City National Tower and Paul Hastings Tower – four levels of underground retail, a three-story “jewel box” structure and thousands of parking spaces. It came on the market when Sacramento-based CalStrs and longtime investment partner Thomas Properties Group Inc. opted to liquidate a joint venture.
Another major deal struck during the quarter was the sale of Thomas Properties to Parkway Properties Inc. in a stock and debt transaction valued at $1.2 billion.
In the deal, which closed at the end of September, Thomas shareholders received $294 million in Parkway stock, and the Orlando, Fla., company assumed $752 million in Thomas debt. The balance of the value is from outstanding and expected property sales.
Maharajh said more eyes are on downtown as both investors and tenants eye opportunities to snatch up assets with upside potential or take advantage of repackaged flexible office space.
“Downtown L.A. is becoming, more and more, a viable option for companies to move their offices to,” he said.
-Los Angeles Business Journal Real Estate Quarterly: Downtown L.A.