BP-Arco Deal Will Create Yet More Vacancies
News of the Arco-BP Amoco merger comes after a string of other major downtown tenants, from Aames Financial to Southern California Gas, have dumped about 1 million square feet of space on the market in recent months, undermining what had already been a lackluster recovery from the last recession.
“It’s scary,” said Howard Sadowsky, regional manager for the brokerage firm Julien J. Studley Inc. “The market is still soft, and there is still plenty of space and options for [tenants].
It is still not clear how much space Arco--which leases more than 200,000 square feet at Arco Center, a Bunker Hill skyscraper--will need once the merger is completed in six to nine months. Although the headquarters office will disappear, the merged company is expected to maintain a regional marketing office in the area.
Arco had just moved into the building after moving out of Arco Plaza, where it was one of the original tenants in the twin-tower office complex at 5th and Flower streets.
The loss of the Arco headquarters and the large amount of space available for sublease has tempered the optimism surrounding the construction of some major new entertainment and cultural developments, such as Staples Arena and the Los Angeles Cathedral. Law firms have also been expanding downtown, and several insurance companies have relocated into the area.
Despite the new arrivals and expansion, the downtown vacancy rate has risen in the last year. At the end of the first quarter of 1999, the vacancy rate--which includes space available for sublease--stood at 20.24%, up from 18.49% at the same time last year, according to CoStar, a real estate research firm.
“We had momentum in the last three years in leasing, but that has certainly stopped,” said Whitley Collins, a leasing broker for CB Richard Ellis. If Arco put most of its space on the market, it would erase most of the gains made in absorbing space downtown last year.
The fallout from the Arco-BP Amoco merger could be offset if some major new tenants decide to relocate downtown, where prime space rents below comparable space on the Westside and in Glendale. Three large firms--specializing in architecture, insurance and consulting--are looking at downtown buildings, according to leasing agents and landlords.
“There is still positive energy in the Los Angeles downtown marketplace,” said Tony Morales, senior vice president in charge of leasing for Maguire Partners, which owns and manages about 5 million square feet of space in the central city. “You still have tenants moving in downtown.”
