Water’s Edge Project Faces Stiff Competition

The gleaming glass-and-steel buildings nearing completion at Jefferson and Lincoln boulevards are signs that the long-delayed Playa Vista project near Marina del Rey is finally beginning to take shape.

But with no tenants on board, the Water’s Edge project also is a sign of the weak and competitive office leasing market on the Westside of Los Angeles.

The area’s vacancy rate has almost doubled, and asking leasing rates have fallen about 10% since Los Angeles-based developer Maguire Partners and investor Equity Office Properties Trust announced the 250,000-square-foot first phase of the Water’s Edge development. In addition, the project must compete with several new and mostly vacant office buildings, including one a short drive away at Howard Hughes Center, and bargain-priced sublease space in established business districts.

“It’s pretty much 180 degrees from where the market was when they decided to pull the trigger [to go ahead with] the project,” said real estate broker Jerry Porter.

Maguire Partners leasing manager Tony Morales said he anticipates about half the complex will be leased by the end of summer.

But with sublease space in Santa Monica undercutting rates at Water’s Edge by as much as 35%, Morales said the project has had to lower its own rent and expectations. Monthly rents at the project now hover around $3 a square foot--even lower for large, blue-chip tenants--compared with about $3.35 when the project was unveiled in December 2000.

“It’s just tough to compete,” Morales said. Tenants “today are saying, ‘We have to be smart about this’ and are trying to find the bottom of the market.”

Even with lower rents, Water’s Edge faces stiff competition, real estate brokers said.

When Porter at Cresa Partners surveyed the market for 150,000 square feet of top-class office space, he found 50 alternatives between West Hills and the South Bay--and that didn’t even include downtown Los Angeles or the Burbank area.

Two of Porter’s largest clients, high-technology firm Symantec Corp. and advertising agency Rubin Postaer, have looked closely at Water’s Edge but have made no commitments.

“It’s relatively expensive, new real estate in a market that’s got a lot of real estate,” Porter said. “It’s the very leading edge of Playa Vista office development, and, as such, it’s going to be pretty short on amenities for some time to come.”

Nearby in Westchester, rival Arden Realty Inc. is marketing a recently completed 12-story office building in its Howard Hughes Center near the 405 Freeway.

In contrast to Playa Vista, which remains largely unbuilt, Howard Hughes Center features other office buildings and a shopping and entertainment center.

“They are very aggressive,” said broker Nick Christensen, referring to Arden Realty. “Arden will be competing toe-to-toe [with Maguire Partners] for each deal.”

Part of the challenge for Maguire Partners is that Water’s Edge is part of the much larger and more complicated Playa Vista project, which will mix thousands of housing units, a 100-acre office park, retail space and schools.

Tenants must be sold not only on the building but on the vision of Playa Vista that is years away from completion.

“It’s definitely part of their challenge,” said Christensen, a Westside real estate specialist at CB Richard Ellis. “They are pioneering a new concept.”