Movie star Cary Grant once remarked that a luxurious castle on the California coast was a “great place to spend the Depression.” In a similar vein, investors may find that the healthy office and hospitality sectors in Los Angeles County are good places to ride out the recession.

While Los Angeles and its suburbs are not immune to the paralyzed debt markets or tenants fretting about rising energy prices, the situation could be a lot worse. In contrast to previous economic slumps, the Los Angeles office market is holding firm on both vacancy rates and asking rents, at least for the time being.

The down cycle in real estate has been “unusual,” according to economist Raphael Bostic, a professor at the Lusk Center for Real Estate at the University of Southern California. While the economy has lingered on the borderline of recession, he says, “It's nothing like what we saw in the early 1990s, when thousands of jobs were lost.”

Broker Bob Safai, a principal with locally based Madison Partners, says that the relative strength of today's office market will help see it through this downturn. “The difference between current and past down cycles,” he says, “is that investors are not forced to sell their buildings, and sell them at a loss.” Office landlords in Los Angeles who choose to sell, he adds, are those who want to put them on the market, and discounting is not a factor.

The relatively healthy office market in Los Angeles is not to be taken for granted. To the immediate south in Orange County, vacancy rates are above 13%. When sublease space is added to that figure, the real vacancy approaches 20%. The difference lies in the diversity of Los Angeles tenants, according to economist Robert Bach, chief economist for brokerage company Grubb & Ellis.

“Orange County had a disproportionate number of firms involved in the mortgage industry that have closed their doors and left some empty space on the market,” Bach says. The difference between Los Angeles and its neighboring county, he adds, is a study in contrasts.

The office vacancy rate in Los Angeles County was 8.7%, a full percentage point higher than at the end of 2007, reports CoStar, but still relatively low. The vacancy rate is not expected to climb much further with only a modest amount of new office space coming on line. About 5.2 million sq. ft. is under construction, a 1.3% bump in supply in a market with an inventory of 407 million sq. ft.

The slow pace of new office space adding to the office inventory is probably a good thing given the molasses-like pace of leasing activity, according to Safai. “Deal velocity is down maybe 70%,” says the office broker.

Even with the slower pace of deals, some big leases have punctuated the still air of the recession like beats on a kettle drum. The largest has been a 420,000 sq. ft. lease that Fox Interactive Media signed for two entire buildings at Horizon at Playa Vista, a development of Lincoln Property Co.

In downtown Los Angeles, the law firm of Latham & Watkins has leased 398,000 sq. ft. in KPMG Tower, a property owned by Maguire Partners. Back on the West Side, Belkin Electronics has leased 120,000 sq. ft. in four build-to-suit buildings at The Campus at Playa Vista, a joint venture of Tishman Speyer and Walston Street Capital.

Despite the credit crisis, institutional investors were able to buy office buildings in the past six months. In March, Transwestern Investment Co. paid $125 million for two buildings, 400 and 600 Corporate Point in Culver City. The seller was Arden Realty, a unit of GE Real Estate.

In June, Arden Realty sold six additional buildings in West Los Angeles and the San Fernando Valley to Douglas Emmett Inc. The Los Angeles-based real estate advisor laid out $610 million for the 1.4 million sq. ft. portfolio. An important factor in both sales was the willingness of GE Real Estate to provide debt financing to the buyers.

Yet another notable sale was that of 5055 Wilshire Blvd. The buyer, Somerset Group of New York, paid $45 million for the 170,000 sq. ft. building; the seller was USAA Real Estate Co. of San Antonio, Texas.