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Friday, Mar 29, 2024

Slow First Quarter Due to Scarcity of Valley Properties

A funny thing happened to the real estate market in the greater San Fernando Valley in the last quarter. Office vacancy rates haven’t moved since the fourth quarter of 2005, and building sales seem to have slowed considerably since the end of last year too. But the lagging activity may not have anything to do with the demand for real estate in the greater Valley area. For one thing, a number of deals are in the pipeline. Countrywide Financial Corp. is about to sign on to sublease 75,000 square feet at 6303 Owensmouth Ave., the 21st Century building. Another 80,000 square feet is in the hopper over at Warner Center towers and the Trillium. And many brokers report they are busy showing properties for lease and sale to prospective tenants and buyers. Rather than a slowdown in demand, brokers say that the problem is a lack of supply. The only large blocks of office space currently available between Burbank and Woodland Hills are the Warner Center towers and Trillium. Both Douglas Emmett properties have a combined 400,000 square feet of space available. That may sound significant, but it makes for slim pickings for large corporations who, for the most part, want to look at more than one or two properties before making a major decision like where to put the company for the next 10 years. “For somebody of 20,000 square feet or so they really have only the Trillium and Warner Center towers to choose from,” said Paul Stockwell, a broker at Studley, who added that the LNR Warner Center project he represents will not be ready until next year. “We can’t do it at LNR unless they’re willing to wait until next year.” At the same time, small spaces that can accommodate users of 5,000 square feet to 20,000 square feet are increasingly hard to come by, limiting the opportunities for mid-sized companies that make up the majority of tenants in the area. In the first quarter of the year, the overall Valley vacancy rate hovered at 7.3 percent, unchanged from the prior quarter and down slightly from 7.9 percent one year ago, according to a report just released by Grubb & Ellis. Net absorption was a mere 41,435 square feet in the first quarter, reflecting the lack of available supply. The supply problems may also be affecting the property for sale market, where prices have soared so high that sellers are starting to see price resistance. Investors are starting to snub these properties because rents have not increased to levels that justify the asking prices, and that, say brokers is largely due to the vacancy rates at the Douglas Emmett properties. “The smaller buildings are leased up and the bigger buildings are having a hard time,” said Brian Forster, a broker at TOLD Partners. “Once we get to $2.60, and you’ve got the Trillium at $2.25, people are going to start going to the Trillium. We’d be really jumping rates if Douglas Emmett had their properties leased.” Meanwhile, the user owners who for some years now have fueled the market for industrial property sales and some of the smaller office buildings are now finding that it is cheaper to lease than to buy. “Buyers are asking, is it really a good decision to take my operating capital and plop it down on a building when my effective nut is 50 percent higher than what I can rent it for?” said Mike Tingus, a broker with Lee & Associates L.A. North/Ventura County. Some sellers have adjusted their asking prices to the current market conditions, but many are holding on figuring that once the rental market stabilizes again, the continuing lack of supply will force buyers to pay their price. Indeed, the industrial sector, which has remained in the 5 percent vacancy range for the past five years or more, tightened even more in the most recent quarter. According to the Grubb & Ellis statistics, vacancy rates for industrial properties in North Los Angeles were at 2.5 percent in the first quarter, down from 3.5 percent in the year ago period. Apartments Tighter Still Apartment occupancy rates continued to edge up in the first quarter of 2006, rising to 96.2 percent in the San Fernando Valley from 95.2 percent in the first quarter of 2005, according to statistics just released by RealFacts, a Novato, Calif.-based tracking service. In the Valley, occupancy rates were highest in Canoga Park, with an average rate of 98.3 percent. The lowest occupancy rates were in Valencia at 92.2 percent. With the market so tight, rents continued to increase, up to an average of $1,468 per month in the Valley for the first quarter of the year, the RealFacts data revealed. That’s a 6.7 percent increase from the year-ago period. Studio City led Valley communities with average rental rates at $1,648 per month. The lowest rates were found in Reseda where apartment rentals averaged $1,039 per month. Rents jumped most dramatically in Sherman Oaks, increasing 9.4 percent year-to-year to an average of $1,624 per month. Woodland Hills was close behind. Average rents jumped 9.1 percent year-over-year in that submarket to an average of $1,596 per month. Valencia Condos Underway An industrial condominium project believed to be among the largest of its kind in the local area, is under development in Santa Clarita. The project, Discovery Gateway Spectrum II, will include 210,000 square feet of industrial condominium space on 12 acres in the Rye Canyon Business Park. The developer, Abbott Bros. Development Inc., has developed almost 500,000 square feet of industrial property in the Santa Clarita area since the 1980s. The units in Discovery Gateway Spectrum II will range from 3,000 square feet to 6,000 square feet. The project is one of several currently under development in the greater Valley area that are capitalizing on the demand by small users for facilities they can own. The project, at 28338-28368 Constellation Road in Valencia, is expected to be completed in December. Jim Ebanks, Jim Abbott and Dianne Abbott at Realty Advisory Group are marketing the property. Santa Clarita Sale Perricone Properties acquired a 9-acre parcel in Santa Clarita for $6.2 million. The property was sold by the owners of Mountasia Family Fun Center, which will lease back the site for its entertainment complex. Jeff Hanson and Ryan Gallagher of Grubb & Ellis represented the seller, Mountasia of Santa Clarita. The complex includes a rock climbing wall and two miniature golf courses, along with a variety of other attractions. The buyer was represented by Greenwood and Sons. Senior reporter Shelly Garcia can be reached at (818) 316-3123 or by e-mail at [email protected].

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