While real estate analysts presented a report indicating a continuing oversupply of office space on the Westside, city government officials argued in favor of more controls on commercial development Thursday during Coldwell Banker's annual real estate conference.
The Westside had a 14.2% office vacancy factor at the end of 1986, and that is expected to increase to 14.5% by the end of 1987, according to John McRoskey, associate vice president of Coldwell Banker's Beverly Hills/Century City division.
After hearing the report on office vacancies, Los Angeles Councilmen Marvin Braude and Zev Yaroslavsky defended slow-growth legislation and urged real estate developers to become more responsive to public concerns about overdevelopment.
If city officials do not initiate legislation that moderates development, they said, residents will come up with more drastic proposals that can be enacted by the initiative process.
Yaroslavsky said that there is strong voter sentiment in favor of government controls on development. The slow-growth measure, Proposition U, which Yaroslavsky and Braude co-authored, was approved by 69% of Los Angeles voters last year, the councilmen noted.
Braude complained that developers automatically oppose any government controls and always predict catastrophe if restrictions are imposed. "With every single land-use reform, I've never had a developer come up and say 'Let's work it out,' "he said.
Yaroslavsky, urging developers to participate in the planning process, said, "You're either going to be a part of it, or you're going to be a victim of it, one way or the other." Coldwell Banker analysts said Thursday that with about 14% of Westside office space unoccupied, building owners are offering substantial rent concessions and providing added improvements to attract tenants.
Early in 1986, landlords were offering concessions that resulted in effective rents of $1.85 to $2.15 a square foot, McRoskey told business and real estate leaders attending the conference at the Century Plaza.
As more office space was leased by the end of 1986, McRoskey said, "the panic subsided" and landlords slightly increased effective rents to between $2.22 and $2.60 a square foot.
"By the end of the year, the (landlords') sense of desperation was gone and this led to much more reasonable concessions," he said.
Although a record 2.1 million feet of office space was leased in 1986, the absorption was offset by 3 million square feet of new construction, he said. In 1987, Coldwell Banker expects 1.8 million square feet of offices will be leased and 2.2 million square feet of new construction will become available.
Projections for 1987
A Coldwell Banker survey of 250 Westside office buildings totaling 31 million square feet, showed 4.4 million square feet vacant at the end of 1986, or about 14.2%. The company predicts that about 4.8 million square feet will be vacant out of a total 33 million square feet expected to be available by the end of 1987 (14.5%).
McRoskey said that although the current market favors tenants, landlords eventually will be in a stronger position.
As office space is absorbed and laws restrict high-rise development, the vacancy rate will decline, he said.
He said that government restrictions increasingly are limiting high-rise development, and new development will be in master-planned office parks. "The demand will outstrip the supply and rates will climb dramatically," he said.
Because of governmental restrictions including the passage of Proposition U last year, only a handful of Westside sites remain where high-rise development is allowed, he said.
McRoskey said that the enactment of Proposition U, which cuts in half the density of office development allowed in certain areas, is not having the intended effect of fostering small-scale office development. Instead, he said, commercial properties are attracting retail projects that generate enough income to offset the land cost, he said.
In an overview of the Westside's retail leasing scene, Coldwell Banker sales consultant John Heidt said that retail rents on posh Rodeo Drive in Beverly Hills are $10 to $12 a square foot. He said that in the center of Westwood Village, rents are $4 to $6 a square foot; in West Hollywood's trendy Melrose Avenue and Santa Monica's Montana Avenue, $1.50 to $3, and in Culver City, where retail leasing was slow, 90 cents to $1.25 a square foot.