Industry Divided on Dot-Coms’ Effect on Rent

The asking rent has been reduced on at least one Westside office building formerly occupied by a dot-com company, but real estate professionals disagree on whether consolidation in the Internet world is having a broader impact on office rents.

The asking rent has been dropped to $2.10 per square foot per month from $2.45 at 2236 Barrington Ave. in West Los Angeles, former home of Digital Entertainment Network, said broker Mike Geller of First Property Realty Group.

First Property was assigned leasing duties by the court in the bankruptcy of Digital Entertainment Network, which leased the space and later subleased it to College Broadcasting.com.

Some Westside landlords are willing to lower rents to attract tenants, said Geller and Klabin Co. broker Doug Marshall, a contrast to conditions last year at the height of the dot-com demand.

“There is some downward pressure on prices” in some parts of the Westside, said Marshall, who is marketing space formerly occupied by MValue.com at 3654 Lenawee Ave. in Culver City. “Landlords are becoming more flexible in terms of parking and other incentives to induce tenants to come to their buildings.”

But the senior vice president of leasing for landlord Arden Realty, Robert C. Peddicord, sees no weakening in the Westside office markets and believes that any landlord who has reduced asking prices on rents is an isolated case.

“There may be a sliver of space [offered at a reduced rent] from a small landlord that owns a building or two, but from an institutional standpoint, none of us are seeing lower rents,” Peddicord said. “The sublease space that has come on the market has had no impact on rental rates, and we expect rents to continue to rise.”

Arden last week signed Vivendi Universal Interactive Publishing to a 10-year lease for 100,000 square feet of space formerly occupied by IXL Inc. at Howard Hughes Center. Vivendi is believed to have signed for significantly more than the $40 million, 10-year deal that IXL signed early last year.

The asking rent at 2236 Barrington was reduced in part because CollegeBroadcasting.com removed furniture and equipment from the space when it pulled out, Geller said. “Another reason for the reduction is that there is more creative space on the market today, so we need to be more competitive to attract a new tenant,” he said.

The lowering of rents is occurring “in a fairly narrow market, the creative-space market” in Culver City and Santa Monica, Geller said. He described “creative space” as warehouses that have been converted into offices with exposed ducts in the ceilings, concrete floors and other design elements aimed at “creating a little more of a hip atmosphere” that is popular with dot-com companies.

Westside markets such as Century City, Beverly Hills and West Hollywood haven’t been affected by the dot-com fallout because few Internet companies are located there, Geller said, and rents are continuing to rise. Peddicord said the former dot-com space now available on the Westside “has spurred activity because some of the ‘old-economy’ tenants now believe they have a stronger chance of negotiating for space,” whereas six months ago there was no space available.

Even today, only 5% of the office space in Santa Monica is vacant, he said, a sign of a very tight market.