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Dick Turpin

Office Glut Gives Tenants Clout

February 03, 1985|Dick Turpin

The greatest supply ever of new office space is now coming into the greater Los Angeles market.

More than 21 million square feet of leasable space is completed or under construction. A year ago, the figure was 18.6-million square feet.

In this rising supply of space, there is a tenants' market and the use of "creative" real estate leasing transactions.

Such abundance of commercial space, particularly in downtown, Westwood/West Los Angeles and the Los Angeles International Airport areas, signals bargaining opportunities for tenants who want to make a move into those sections of the city, says Howard Sadowsky, senior vice president here for Julien J. Studley Inc., national realty specialists and consultants in commercial brokerage.

"The developers of the new buildings are all trying to find their niche in the marketplace," he said. "The builders who are most creative and sensitive to the needs of tenants will do well in 1985. While most, if not all owners, are offering some kind of concession package, the developer who goes beyond the norm and becomes more creative in the total packaging and marketing of the building will succeed in leasing his project.

"In order to entice tenants to their respective buildings, developers will be offering up to a year's free rent, dollars toward above-standard improvements, a cap on the increase to parking and so forth but these inducements don't seem to be enough."

"We find a number of developers taking the next step, or more importantly, a different direction. They are trying to entice with design. If you look around the city, most of the new buildings are of an odd and unusual shape. The rectangle building is out; five-sided, rounded corners or triangle buildings are popping up all over.

"Some developers are putting greater quality into the construction and improvement of the building. No longer is the simple glass structure acceptable. O'Melveny & Myers' new building downtown leased up its space by using high-quality materials, thus creating a high-profile image. Tenants are demanding better-built buildings and are willing to pay for them.

"No longer is the simple brochure the standard marketing tool. In fact, a 10-minute voice-over slide show is becoming an additional ingredient to help sell a new major building."

Sadowsky noted that during 1984 about 8,870,192 square feet of office space was leased in all buildings throughout the Los Angeles area. The city has averaged 8,500,000 square feet leased for the last five years, indicating that office space demand has been very consistent.

He said the supply in downtown Los Angeles is now approaching 8.31 million square feet, with 5.4 million square feet available immediately.

Westwood/West Los Angeles will have a total of 4,309,680 square feet, with 3.4 million being offered now. The airport area has 3 million square feet available with another 417,900 square feet under construction.

And that is why such oversupplies will translate "into sensational deals for tenants," he predicted.

The concept of equity positions by tenants in office structures has been a demand factor for some time but plans vary depending on needs and the firms involved.

For instance, Westside Towers at 11835-11845 Olympic Blvd. is offering equity to any tenant leasing office space there. There is no additional charge for the equity and the liability of the tenant is limited. At International Towers, at 9th and Figueroa streets, cash is not required in taking equity positions.

Another comparatively new ingredient in the creative leasing field, the Studley executive said, is the "intelligent building"--employing the newest techniques to save energy and reduce costs.

Such "smart" structures also have the built-in sophistication of communication systems, available to the tenant from the building's owner. Included would be all the facilities, equipment and services needed to deal with the world of computerization.

Michael Geller, assistant vice president, adds:

"These technologies have brought together many services in efficient and cost-effective ways. Furthermore, everyone wants to be part of the computer age."

All of which means that developers and owners, in this very competitive arena, must create attractive packages to provide the best amenities as tenant-lures, Sadowsky said.

Looking at the leasing activity of 1984, he said the local market recorded 8.9 million square feet of space leased, down 6% from 1983's 9.4 million square feet.

Three sectors reached or topped the 1-million-square-foot mark, downtown Los Angeles, with 1.8 million, Westwood/West Los Angeles with 1.1 and Century City with 1 million.

Area-wide, the average rental asking price was $2.11 per square foot per month, fully serviced. There was a 4% increase over 1983 costs, with space in new structures averaging $2.23 per square foot per month and $1.85 in old buildings; respective 1983 figures were $2.16 and $1.77, fully serviced.

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