Well-Heeled Firms Beat Path to Westwood

Growing technology and entertainment companies are in the vanguard of wealthy tenants who are filling up top-flight Westside offices, pushing less affluent renters into secondary locations such as the Los Angeles International Airport area. The top of the pyramid has turned out to be Westwood, where several new tenants have signed substantial leases and more are apparently on the way.

And although Westwood office lease rates are already the highest in the Los Angeles area, it looks like rents will continue to rise--despite competition from offices being built in eastern Santa Monica nearby.

The landlords at Westwood Center, a 34-year-old building on Glendon Avenue that is undergoing a major renovation, are asking for monthly rents of about $3 per square foot, 50% more than building owners were able to charge during the 1990s recession.

“Westwood is on the rebound. Office tenants and retailers are flocking there,” said Eric Hasserjian, regional leasing director with Brentwood-based Arden Realty, Westwood Center’s owner.

Hasserjian and other Westside pros say demand for Westwood offices has been particularly keen over the last four or five months as jitters over last year’s global financial turmoil subsided.

As spring turned to summer, “the Westwood market really began to explode and we started getting multiple offers for the space,” said Brad Feld, the Cushman & Wakefield broker engaged to sublease the four floors of Oppenheimer Plaza on Wilshire Boulevard that were recently vacated by cable operator Americast.

The new tenants taking over the space include Burbank-based pay-per-view firm TVN Entertainment Corp., Internet-based career-management specialist CareerPath.com and Grey Rock Financial, an investment-banking affiliate of Bank of America/NationsCredit.

Feld noted that the Americast subtenants are paying an average of just under $2.50 per square foot under the relatively short three-year leases. Once the subleases expire, the newcomers to 10880 Wilshire will have to work out new terms with building owner Equity Office Properties.

But the businesses that want space among the five floors that law firm Troop Meisinger Steuber & Pasich left behind at the Tower (10940 Wilshire) when it moved to Century City are likely to pay more than Americast’s subtenants.

Jim Brooks, senior director with Tower owner Tishman Speyer Properties, said his company is in late negotiations with eight tenants that would fill the entire 68,000 square feet the law firm vacated at the 24-story building.

Tishman Speyer expects the newcomers to pay just under $3 per square foot. The news is ominous to Westwood tenants that signed their last leases around five years ago, when the recession-battered market offered prime space in the range of $2 per square foot--even less in many cases.

“It’s incredible. Tenants look at you with their eyes fogged over” when they realize what levels rents have reached, Brooks said.

That fog may not lift soon, even though competitor Arden is marketing the entire 21-story Westwood Center--which for decades housed the landmark Monty’s steakhouse in the penthouse--and new projects totaling nearly 1 million square feet are under construction in eastern Santa Monica.

Arden is negotiating with prospective Westwood Center tenants who need a combined total of 300,000 square feet, Hasserjian said. About one-third of them are from the traditional professional and service sectors, with the balance in media and technology.

Hasserjian expects rents at Westwood Place to exceed Westwood’s already high average. The initial quotes are just above the latest rates at the Tower, but Hasserjian said he expects to do “considerably better” after several tenants commit.

Midyear statistics from brokerage CB Richard Ellis indicate the 15 towers comprising the bulk of Westwood’s skyline collectively boast a 6.5% vacancy rate and the highest asking rents in the entire L.A. Basin--averaging just a nickel below the $3 mark. The rate is off slightly from six months previously, as are the other high-rent submarkets on Westwood’s tail: Beverly Hills, Santa Monica and Century City.

The midyear average for the entire Westside was just under $2.50 per square foot. Offices in downtown Los Angeles, which continues to suffer from an oversupply of high-rise space, command closer to $1.75 per square foot, according to Ellis.

As Asia’s woes continued to spread anxiety through the business community early this year, many tenants and their representatives “waited to see if [Westwood] landlords would blink” and drop their “lofty” asking rates, recalled veteran Westside broker David Thurman. Now tenants are more likely to be fast-tracking their renewal, expansion or relocation negotiations to lock in prevailing rates before they get even higher, the Concorde Real Estate principal said.

Some tenants have responded to the climbing rents by seeking digs to the south in Marina del Rey or Culver City. Even the long-troubled Century Boulevard office market near LAX is catching some of the spillover.

Hasserjian and others say they are seeing more controlled expansion during the current construction cycle by developers, lenders and tenants alike. Contrast this with the 1980s boom that became a financial disaster for many landlords and banks as rents and property values plummeted with the recession of the early 1990s. The slower pace of and zoning restrictions on current high-rise development should keep Westside rentals high for the foreseeable future.

“I’m a big believer in the West L.A. story as the place to be long term as a landlord,” added Brooks of Tishman Speyer. “It offers all the amenities people are looking for. It’s something that’s very difficult to duplicate, and that’s why downtown still suffers.”