Approaching a Tipping Point? U.S. Office Rent Growth Lags Despite Rising Tenant Demand

By Randyl Drummer July 18, 2012 Although rising levels of office absorption and a falling U.S. vacancy rate signal a strengthening market, the gains have yet to translate into meaningful rent increases for office landlords in most markets, CoStar Group reported this week in the company's Second-Quarter 2012 Office Review & Outlook. This week, CoStar analysts drilled deeper into the office market numbers in a report on the national office market at midyear 2012 presented to CoStar clients. And while they see encouraging signs in the broader CRE market, specifically in the office and industrial sectors

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Social-Media Firm Takes 52,000-SF Creative Building

SANTA MONICA, CA- Demand Media, a leading content and social-media company, will relocate its headquarters to 1655 26th St. here after signing a long-term lease for the entire 52,000-square-foot building in a transaction valued at approximately $23 million.  The 52,000-square-foot building
was previously occupied by MTV, which vacated the building at the end of 2011 as a result of the
recent downsizing by parent company Viacom. The move allows the tenant to consolidate its operations and its 300-plus employees, which were dispersed throughout several buildings downtown.

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The 6 Firms Competing to Design the New Sixth Street Bridge

Last night, the Bureau of Engineering held the first meeting to discuss a new design for the Sixth Street Viaduct, which connects the Arts District and Boyle Heights across the LA River. It's a popular filming location and could be considered one of Downtown LA's most famous structures, but unfortunately, "concrete cancer" (Alkali-Silica Reaction) required that the bridge be replaced, despite the protestations of neighborhood activists and preservations. Now that the viaduct's fate is sealed, the city announced a competition to design a new $401 million bridge, mostly funded by the Federal Highway Administration. There are currently six firms vying for the design contract (all of which were repped at the meeting last night): AECOM, ARUP, HNTB, Parsons, Parsons Brinckerhoff, and Skidmore, Owings & Merrill. That list will be culled on July 31 to three potential consultants for the design competition. The finalists will present their designs in September, and a final selection will be made in October. The entire project is scheduled for completion in 2018.

At last night's meeting of the Design Aesthetic Advisory Committee, representatives from the BoE spelled out the city's goals for the project and some of the changes that residents can expect for the new bridge. Perhaps the most prominent design change is that the BoE is insisting on a cable stayed bridge. Also important, a new alignment takes a curving route over the river, rather than the sharp turn the bridge currently makes above the west bank. The new bridge will have wider sidewalks, pedestrian and bike infrastructure, and enhanced access to the river. (Some public commenters asked for a suspended gondola and a place to dine above the river on the bridge, but those ideas are very speculative at this point.) DAAC member and architect Doug Suisman expressed some concern that only $5 million (i.e., about one percent) of the project's total budget is devoted to "River, Landscaping, Bicycle, and Pedestrian Work." Chief City Engineer Gary Lee Moore replied that the FHWA's requirements would determine a lot of the funding allocations, and that the BoE did not want to over-promise at this point in the process.

The meeting was also the first chance for the DAAC (appointed by city officials) to talk about their hopes from the bridge. All in attendance agreed that the bridge should be an architecturally significant public gathering place to help revitalize the two adjacent neighborhoods. The BoE presentation also stated clearly that the new bridge should "facilitate/celebrate [the] implementation of [the] LA River Revitalization Master Plan." Difficult decisions about historicism, modernism, and minimalism were discussed but left for later phases of the design competition.

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8000 Sunset Blvd Sells for $99 million

HOUSTON--(BUSINESS WIRE)--Jul. 2, 2012-- Weingarten Realty Investors (NYSE: WRI), a leading owner, manager and developer of shopping centers, announced today that its year-to-date acquisitions total $121 million. The Company completed the acquisition of 8000 Sunset for $99 million, representing approximately a 6% capitalization rate. 8000 Sunset is a 171,400 square foot grocery anchored shopping center, located on the Sunset Strip, in the West Hollywood submarket, of Los Angeles, California. Positioned at the corner of Sunset Boulevard and Crescent Heights Boulevard, it is located at one of the most bustling intersections in Los Angeles with over 140,000 vehicles passing by the site each day. This densely populated, infill location, is surrounded by exceptionally affluent residential communities including Beverly Hills, West Hollywood and Hollywood Hills. It boasts strong three-mile trade area demographics including a population density of 240,000 people and average household incomes of $104,000. The property is currently 94% leased and is anchored by the California-based, specialty grocer, Trader Joe's along with CB2 (“Crate & Barrel”), Sundance Cinema and Crunch Fitness.

"8000 Sunset is the quality shopping center that we are focused on in our recycling initiative. The center’s retailers, Trader Joe’s, Pei Wei and Starbucks, are all existing relationships and combined with the superior demographics including the extreme density and high household incomes as well as strong barriers to entry represents the quality we are pursuing in our acquisition program today," said Drew Alexander, President and Chief Executive Officer.

In addition, during the second quarter, the Company disposed of $45.8 million of non-core properties, bringing the year-to-date dispositions to $476 million. This includes the sale of its wholly-owned industrial portfolio for $382.4 million.

About Weingarten Realty Investors

Weingarten Realty Investors (NYSE: WRI) is a shopping center owner, manager and developer. At June 30, 2012, the Company owned or operated under long-term leases, either directly or through its interest in real estate joint ventures or partnerships, a total of 316 developed income-producing properties and 11 properties under various stages of construction and development. The total number of properties includes 302 neighborhood and community shopping centers and 25 other operating properties located in 21 states spanning the country from coast to coast representing approximately 63.5 million square feet.

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$250M Mixed-Use Project To Break Ground In August

PLAYA VISTA, CA-Groundbreaking is set for August on the long-anticipated town center here, a mixed-use development called Runway. A developer group including Lincoln Property Co. Southern California, Phoenix Property Co. and Paragon Commercial Group will build the first project in the 111-acre Village at Playa Vista, the second and final phase of the community recently given the go-ahead.

The $250 million, four-story project will contain a 200,000-square-foot retail center, 420 apartments, 25,000 square feet of creative office space and 3 acres of open space. It will be located on the legendary runway that once gave rise to Howard Hughes’ aerospace empire.

Playa Vista, the first new master-planned development on the Los Angeles coast in 50 years, already includes more than 3,200 residences and 2 million square feet of office space but has lacked a major town center. The center will bring retail, food and beverage, a premium grocery store, pharmacy and entertainment center to local residents and neighbors.

Scott Johnson, design partner at architecture and urban-design firm Johnson Fain, calls Runway’s design “beach industrial,” reflecting the Southern California coast culture and its location among a growing number of technology, Internet and entertainment companies frequently referred to as “Silicon Beach.”

“Runway is designed to suit lifestyles and entertainment trends that we see ahead for the digital generation,” said Johnson in a prepared statement. “What the design does is to merge contemporary architecture with a Main Street that is intimate, pedestrian-friendly and sociable. Communal seating, California native landscaping, outdoor fire pits and an array of fine arts will invite visitors to come together, people-watch, relax and enjoy this unique beach setting.”

Runway will be four city blocks of highly individualized small-scale buildings reminiscent of shopping districts such as Venice’s Abbot Kinney Blvd., Melrose Ave. and the Malibu Country Mart. The central entrance will feature a striking five-story lantern filled with art; other features include state-of-the-art digital way-finding signage, universal Wi-Fi and building materials familiar to coastal residents including Corten steel, galvanized sheet metal, rough-sawn cedar planks and colored glass and tiles.

The Residences at Runway will include two-story townhomes and a collection of contemporary apartments on upper levels surrounding garden courtyards, recreational decks and a swimming pool. Additionally, the complex will have access to an indoor/outdoor fitness center, social lounges with fire pits, barbecues, a large event space and private parking.

“We are very excited about Scott’s design that is both forward-looking and very informed by how people enjoy using space,” said David Binswanger, EVP of Lincoln Property, in a prepared statement. “His design for Runway will create memories for years to come.”

Runway’s retail tenants will include a premium grocer, state-of-the-art movie Cineplex, chef-driven restaurants, sidewalk cafes, cutting-edge fashion retail and community-serving businesses, according to Binswanger.

As GlobeSt.com previously reported, in May California Pizza Kitchen became the latest tenant to sign a long-term sublease agreement with Fox for space at The Bluffs at Playa Vista, formerly known as Horizon at Playa Vista. The global restaurant brand has taken nearly 34,000 square feet for its headquarters on the top floor of the two-building project’s West building; expected move-in is in the fall. The LEED Gold project is a 501,000-square-foot complex at 12121 and 12181 Bluff Creek Dr. that J.P. Morgan Asset Management bought for $300 million last year. Tenants have been subleasing space from Fox, which had planned to move its Fox Interactive Media division into the project and had signed a 12-year lease valued at an estimated $350 million before deciding not to occupy the campus because of falling fortunes at Fox Interactive. Fox currently has almost 275,000 square feet of space remaining at this property, and its sublease term runs through April 2021.

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