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LAX Office Rental Market Stays Grounded

Congestion, jet noise and older buildings keep vacancy rates high. But some are optimistic.

June 27, 2005|Roger Vincent | Times Staff Writer

To let: High-rise office space with spectacular views, cool ocean breezes and ample parking. Close to major public transportation hub. Cheapest rent in town.

The pitch may sound alluring, but the office market around Los Angeles International Airport remains one of the weakest in Los Angeles County. Almost a third of its 4 million square feet on West Century, La Cienega, Aviation and Sepulveda boulevards is empty and not expected to fill up anytime soon.

"The market always has been soft and always will be soft," said real estate broker Kevin Shannon of Grubb & Ellis.

The airport district is saddled with some serious baggage, starting with aging, sometimes poorly maintained office buildings. Then there is the noise from thousands of cars and 1,850 airplane flights a day. Lunch options for those who venture out on the narrow sidewalks are mostly limited to fast food and hotel restaurants. Many of the shops are, as one booster admitted, "schlocky." A landmark Century Boulevard strip club has promised "Nude Nude" dancers to a generation of passersby.

The airport office market "has no amenities" for tenants, said real estate broker Bob Safai of Madison Partners. "It does have incredible amounts of congestion on a regular basis" on Century Boulevard and the nearby San Diego Freeway.

Although the area's office vacancy rate reached 31.6% in the first quarter of this year, owners of some of its best buildings are growing optimistic. The vacancy rate is inflated by huge chunks of unoccupied space in some poorly managed buildings of marginal quality that don't really compete with the rest of the market, they say. Two or three of those old buildings could conceivably be converted to residential use and removed from the office pool.

"We've gotten a bum rap," said real estate broker Chris Strickfaden of PM Realty Group, who represents office landlords. "Our biggest challenge has been to get people to tour our market. It's not seedy like it used to be."

Property owners contribute $1 million a year to a business improvement district that cleans and patrols the streets. LAX officials spent more than $100 million on decorative pylons, palm trees and landscaped medians to improve the airport's Century Boulevard entrance in time for the Democratic convention in 2000.

Tenants on the upper floors of office buildings such as 6033 W. Century Blvd. have commanding views unlike any other in Los Angeles County. One can see jets arriving and taking off to the south, the ocean to the west and the high-rises of Century City and Wilshire Boulevard to the northeast.

Next door is the Sheraton Gateway Hotel, where the owner, Kor Group of Los Angeles, recently spent $14 million on improvements that include a plush new lobby in hues of charcoal, navy and crimson and a steak house franchised by former Miami Dolphins coach Don Shula.

Occupancy at the hotel is up 15% this year, said John Arnett, president of Kor's hotel division, and room rates are rising too. "That signifies a strong turn in the market," he said. "We're very bullish."

Landlords hope that the improving office market on the Westside will lift the airport as budget-conscious tenants find themselves priced out of Santa Monica, Marina del Rey and El Segundo.

"Hands down, we're the cheapest in town," said Scott Chalmers of Arden Realty, which owns three buildings at the airport. Average rent in the district is $1.45 per square foot per month, compared with $2.89 in Santa Monica and $2.05 in El Segundo and Manhattan Beach.

The softness in today's market is a far cry from the 1960s and 1970s, the heyday for airport office buildings, when LAX was the only large-scale civilian air facility in the region and aerospace, defense and travel-related businesses demanded to be there, Strickfaden said.

The land east of the airport along Century Boulevard was mostly asphalt parking lots and fields as recently as the 1960s, Strickfaden said. During that decade the office market began to take shape with such projects as Airport Center, which includes a 15-story building on Airport Boulevard.

By the 1980s there were improved airport alternatives in Ontario and Irvine. A building boom swept the region and created many new competitors for office tenants. LAX saw new office construction too, but some of the buildings were not well planned and at least one large complex lapsed into bankruptcy.

The early 1990s recession punished Los Angeles County's overbuilt office market, with the airport area taking one of the largest hits as its overall vacancy rate topped 30%. Better times returned in the late 1990s when the dot-com boom brought financially flush young companies looking for buildings with large blocks of empty space and room to expand. The vacancy rate dipped to as low as 20%.

That trend was over by 2001. With the disappearance of free-spending Internet companies and the economic fallout from the 9/11 terrorist attacks slamming the market, the occupancy rate dropped again, according to Cushman & Wakefield.

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