Office Vacancy Level Reaches Five-Year High : Real estate: Major Westside developments are put on hold. Hotel construction is severely slowed. Economic fears and war jitters are cited.

The Westside’s once red-hot commercial real estate market has cooled rapidly in recent months, slowing construction of major projects and sending office vacancy rates soaring to their highest level in the past five years.

Real estate analysts said concern about a weakening economy and worries about a Persian Gulf war effectively stopped businesses from absorbing new Westside office space in the final months of 1990.

“Everybody psychologically went on hold, waiting to see what was happening around the world,” said Greg Sherwood, senior vice president and district manager for Grubb & Ellis Co., a major real estate firm.

With the completion of several major office buildings, the Westside’s overall office space vacancy rate jumped from 13.5% in 1989 to 16.5% at the end of last year, according to a Grubb & Ellis survey.

In Beverly Hills, Westwood, Culver City and the Marina del Rey area, the office vacancy rate now exceeds 20%.

Altogether, nearly 7 million of 42.2 million square feet of Westside office space now stands empty.

The softness in the commercial real estate market is evident in year-end figures that showed the net absorption of new office space on the Westside last year was just 570,000 square feet, a far cry from 1.7 million square feet in 1989.

Preliminary figures to be released this week show the decline was even steeper in the fourth quarter of last year, when only 14,300 square feet was absorbed instead of the usual 200,000 square feet. “That’s basically zero,” Sherwood said.

The economic slowdown and war jitters combined with financing problems and a glut of hotel rooms has slowed development of major new office and hotel projects.

After rushing to win government approvals, Los Angeles developer Jerry Snyder now is moving slowly on the massive $400-million Channel Gateway project, on Lincoln Boulevard near Marina del Rey. At this point, only a series of apartment buildings, financed by $67 million in tax-exempt bonds, are being built on the 16-acre site.

Construction of a 314,000-square-foot office building on the property was put on hold after the company that Snyder had envisioned as his anchor tenant, athletic shoemaker L.A. Gear, withdrew from lease negotiations.

Snyder and other developers said that banks, concerned about a large portfolio of real estate loans, have been reluctant to make new loans without major tenants and without the developer assuming much of the risk.

Small developers with little capital and less access to financing are in the worst shape, Snyder said.

“There is no way to build a speculative office building,” he said. “That’s impossible now.”

However, Snyder said he and his partners obtained approval last week for a $90-million loan on the first of two high-rise condominium towers in the Channel Gateway project.

The developer and his partners also are proceeding with construction of the first phase of a $450-million Water Garden office project in Santa Monica.

Snyder said about 25% of the project’s 670,000-square-foot first phase has been leased. No work has begun on the second phase of the overall 1.26-million-square-foot complex.

Snyder said in recent months many businesses and investors adopted “an absolute wait and see” posture because of the crisis in the Persian Gulf.

In the same Santa Monica neighborhood, Maguire Thomas Partners is completing construction of the final phase of the Colorado Place office project, which is about 60% leased.

Real estate analysts expect to see a substantial increase in the vacancy rate in the Santa Monica area in coming months as those two large projects are completed.

Sherwood said an additional 7 million square feet of Westside office space has received government approval, but he said it is unlikely that construction will start any time soon. “A prudent developer is not going forward,” he said.

The story is the same for Westside hotel projects.

“Hotels are not going to be built in today’s climate because of the shortage of financing and what seems to be saturation,” said one Westside developer. “It’s fair to say that new hotel construction, if not at a standstill, is severely slowed.”

Los Angeles County officials have been told, for example, that Maguire Thomas Partners wants to drop some of the 2,400 hotel rooms planned for the massive Playa Vista project between Marina del Rey and the Westchester Bluffs.

Senior Partner Nelson C. Rising declined to discuss the development firm’s plans concerning the hotel component of the multibillion-dollar Playa Vista project.

But Maguire Thomas spokesman Tim Walker said the firm does intend to proceed with construction of a six-story, 170-room hotel on Ocean Avenue in Santa Monica, a beachfront area where two other luxury hotels have been built in recent years.

In Marina del Rey, developer Abraham M. Lurie and his Saudi Arabian partners have told county officials they want to build a retirement hotel instead of a long-delayed luxury hotel on the last undeveloped parcel in the marina.

Despite the slowdown in commercial real estate, industry experts are confident that the Westside will bounce back quickly because of its desirability as an office location and Los Angeles’ underlying economic strength.

Although vacancy rates are likely to climb in the short term, creating a tenant’s market for office space, industry experts said the absence of new buildings will probably create a space shortage in coming years.

WESTSIDE OFFICE VACANCY RATES Vacancy rates for office space on the Westside reached the highest level in five years at the end of 1990. Real estate analysts said businesses delayed decisions about leasing new offices amid concern about a slowing economy and a Persian Gulf war. Completion of new office projects contributed to the rise in vacancy rates. Marina/Culver City: 21.6% Westwood: 20.9% Beverly Hills: 20.6% West Los Angeles: 16.9% Brentwood:18.5% Century City: 15.1% Miracle/Park Mile: 14.0% Hollywood/West Hollywood: 10.3% Santa Monica: 12.1% Average: 16.6% Total Space: 42.2 million square feet Total Vacancy: 7 million square feet Source: Grubb & Ellis Co .