"Big Six" accounting firm Deloitte & Touche is about to give the long-suffering downtown office market a major shot in the arm with one of the biggest lease commitments the central business district has seen since before the early-1990s recession.
Deloitte is negotiating to consolidate its local operations in April 2000 into most of the Bunker Hill high-rise floors now occupied by the Metropolitan Water District, which will relocate to headquarters now under construction near Union Station, Deloitte representative Linda Salzman said. Deloitte officials expect to agree to lease 340,000 square feet or more at Two California Plaza--roughly 13 of the tower's 52 floors--within the next two months.
Consolidation of the firm's growing L.A.-area operations into downtown is already underway. Deloitte occupies about 160,000 square feet at the 1000 Wilshire tower along the Harbor Freeway. The firm has also leased offices recently at nearby Arco Plaza, and its team of brokers from Julien J. Studley Inc. and Heitman Properties Ltd. is negotiating for still more space as it plans to bring employees downtown from satellite offices in Century City, Woodland Hills and Long Beach.
The 90 employees at the Century City office are scheduled to move downtown in August, Salzman said. Deloitte will probably occupy about 100,000 square feet at Arco Plaza until it moves up the hill in about two years.
While consolidating its L.A.-area partners and employees downtown, Deloitte is beginning a "drop-in center" strategy of office design, maintaining small (5,000 to 8,000 square feet) facilities in Century City, another in Woodland Hills and a third somewhere near Los Angeles International Airport. More will be added if needed.
Salzman declined to disclose financial details of the move, citing the ongoing negotiations with Two California Plaza owner Equity Office Properties, the nation's biggest office real estate investment trust. However, downtown real estate sources say Deloitte will probably commit for a lease term covering 15 years.
Downtown brokers estimate the deal's value at more than $150 million--ranking it among the biggest tenant commitments to the central business district over the last several years.
"It's really good news for downtown," said broker Bob Caudill of Jones Lang Wootton.
Deloitte can probably save a considerable amount by consolidating--the Century City group in particular--in relatively inexpensive downtown, commercial real estate professionals suggest.
Class A high-rise office rents downtown have risen from the $15-to-$20 range per square foot monthly two years ago, to $25 to $30 today, and should reach the $35-a-foot mark in a year or so, Caudill said. In contrast, top Westside office buildings today already command rents exceeding $35 per square foot, with premier properties fetching $45 or more.
Downtown's overall office vacancy rate was 18.2% at the end of 1998's first quarter--a figure that jumps to 23% if leased space that tenants are trying to sublease is added. The Westside market's vacancy rate stood at just over 12% at the end of the first quarter, according to Cushman Realty Corp.
The move by Deloitte & Touche will bring Bunker Hill's vacancy rate into the single-digit range, predicts broker Brad Cox of Cushman & Wakefield, a participant in many transactions that have brought tenants to the hill.