Whether we like it or not, the Manhattanization of downtown Los Angeles real estate continues. We don't have the mass of New York City buildings, but we certainly are beginning to match Gotham's financial heft.
Just past midyear, an observer of the state of commercial real estate notes that Los Angeles is "taking its natural position as the capital of the West with downtown as the central focus."
Such major eastern banking institutions as Chase Manhattan and Citicorp are now prominently located downtown, and in the near future, Manufacturers Hanover will join them, adds Howard Sadowsky, senior vice president here for Julien J. Studley Inc., the national realty firm.
"The country's top 20 law firms, if not already in Los Angeles, will be there soon, and companies which transact business with these groups, are also opening offices downtown," he said.
"In addition to commercial growth, Los Angeles' educational and cultural activities are expanding. In downtown, the new Museum of Contemporary Art is opening at the end of the year. On the Westside, the Los Angeles County Museum of Art is undergoing an ambitious expansion which will considerably increase its size, and the Getty Museum is planning to build a new, 450,000-square-foot structure in Brentwood.
"Downtown developers are furthering this heightened artistic consciousness. Budgets for art in the public areas of new buildings have soared dramatically in the past few years. Crocker Center and Security Pacific Plaza are typical of this new development mentality."
Comparing the local market to the rest of the nation, Sadowsky said Los Angeles ranked fifth in total office space available during the first four months of this year but moved up to third in total space leased. New York, Washington, Houston and Chicago were ahead of Los Angeles in space availability; New York and Washington led Los Angeles in leasing.
The cost of leasing premium office space in downtown Los Angeles, as of June, compared favorably in the top five major markets, ranking as the second least expensive. The effective rental rate for prime space was $22 to $23 per square foot per year on a 10-year lease. Only office-glutted Houston was cheaper at $15.
Property owners of downtown sites are currently allowing $35 to $38 per square foot for tenant improvements, while landlords in the other four cities provide an average of $32 to $35 per square foot.
The most recent land sale downtown for a major office structure brought a price of $600 per square foot. The other major markets showed costs ranging from a high of $1,200 in New York to a low of $300 in Houston.
For the greater Los Angeles area, during March and April, the bimonthly SPACE/DATA report by Studley showed a brisk pace of office leasing--2.3 million square feet. Of that total, 1.2 million square feet was space in new buildings, up dramatically by 95% from the same period a year ago. Year-to-date leasing figures also show a big jump over 1985 numbers, with more than 4.8 million square feet leased overall and 2.8 million square feet leased in new buildings.
"Downtown Los Angeles is a hotbed of activity. Deals being offered are tremendously aggressive. A medium to large tenant can enter into a lease with an effective rental of $22 to $23 a square foot for 10 years, including (some) free rent, and receive $35 to $38 per square foot in tenant improvements," Sadowsky said.
Prime space is rapidly being absorbed, creating "a tightening in first-class space," he said, and large space users desiring such space will very soon have fewer alternatives.
In contrast, less prestigious and existing buildings presently have ample space and he expects this condition to continue through mid-1987.