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San Fernando Valley Market Stalls Even as Economy Picks Up

After a hectic 2013, the San Fernando Valley office market got off to a slow start this year, with vacancy little changed and rents trending downward. Driven primarily by a weak West Valley submarket, the region as a whole gave back 27,000 square feet and average rents dropped from $2.27 to $2.21, according to the L.A. office of Colliers International. Overall, the Valley’s vacancy rate stayed fairly steady, dropping just one-tenth of a point to 15.4 percent. That’s a big improvement over recession-era numbers, but the stall in momentum was disappointing after a fourth quarter that saw the largest single-property sale in the San Fernando Valley, at 10 Universal Plaza, in more than a decade. “Unlike last year’s robust sale activity, 2014 started out lackluster for institutional investment interest,” said Arty Maharajh, vice president of research at Cassidy Turley in Los Angeles. He compared his firm’s $11.7 million total investment sales in first quarter 2014 with the $170 million in investment sales it did a year earlier. Where existing L.A. landlords such as Jamison Services Inc. and Douglas Emmett expanded their portfolios in the area late last year, a smaller, diverse set of companies in the entertainment, medical, educational and insurance sectors drove sales and leasing activity in first quarter. “Small businesses have been causing an increase in demand. They’ll be sopping up the vacancies that the larger firms, particularly in the aerospace industry, create as they wind down,” Maharajh said. The Central Valley submarket continued to experience tight conditions, with a vacancy rate at 9.8 percent and average rent at $2.26. Though the submarket gave back 21,400 square feet and vacancies rose five tenths of a point, smaller clients are still queued up to buy, said Stacy Vierheilig-Fraser, senior managing director at Charles Dunn Co. Most of them have arranged for SBA financing but “nobody wants to sell because they don’t know what to do with their money other than keep it in real estate,” she said. The East Valley submarket had the strongest first quarter, with nearly 34,000 square feet of net absorption and a drop of 1.3 points in its vacancy rate to 20.2 percent. In contrast, vacancy ticked up three tenths of a point in the West Valley to 16.3 percent. There is substantial activity in the submarket, some of it driven by the decision at Farmer’s Insurance to let its Warner Center leases expire and consolidate its employees at its new headquarters on Owensmouth Avenue in Canoga Park. That leaves companies like Universal Music Group, which had a sublease at 6301 Owensmouth Ave., scrambling for space. “Universal Music is looking for a lease in the 120,000-square-foot range,” said Ryan House, vice president at the Valencia office of Jones Lang LaSalle. “The market there is poised for some improvement over the next six months.” Jeffrey Gould, senior associate in Colliers’ Encino office, said vacancy rates are headed down in Warner Center because it offers large swaths of space at a good value – but rent growth has been slow. “What’s being impacted is concessions on the tenant side,” he said. Things were looking up in the Valley industrial market, with nearly 450,000 square feet taken off the market and vacancy ticking down four tenths of a point to 2.9 percent. A beer distribution center in Sylmar sold for $31 million and a large lease took place in Chatsworth, where Panavision Federal Systems took 22,775 square feet in a flex building at 9340 De Soto St. On the retail side, Beverly Hills investment firm Kennedy Wilson Properties Ltd. paid $30 million in January for Victory Plaza, a grocery-anchored retail center, and an adjacent 2.4-acre parcel zoned for multifamily. The 13007-13047 Victory Blvd. North Hollywood center had been foreclosed on. – Karen E. Klein Main Events Macy’s Inc. of Cincinnati sold its North Hollywood retail store and regional office headquarters in January. The $50 million sale included two properties at 6150-6180 Laurel Canyon Blvd., comprising 285,000 square feet of retail, a second-floor office and an adjacent 90,000-square-foot office building. The buyers, who plan to redevelop the site, are Goldstein Planting Investments of Los Angeles and Merlone Geier Management of San Diego. Reyes Holdings LLC of Rosemont, Ill., purchased a 220,000-square-foot industrial distribution center in Sylmar as part of its buyout of Allied Beverages Inc., a beer distributor. The Class B building, at 13235 Golden State Road, sold for $31 million, or $141 per square foot. Infinity Ward, a video game company known for its best-selling Call of Duty series, renewed its lease at 21255 Burbank Blvd. The company occupies 43,754 square feet in the Class A building. The 236-unit Marquee Apartments in North Hollywood sold in March for $27.5 million. The building at 12300 Sherman Way was purchased by MPG Properties Group of San Diego from Marquee Apartments LLC of Phoenix, and represented the largest multifamily sale in the East Valley submarket in the last 18 months. The 135,000-square-foot building was constructed in 1965 and was about 96 percent leased. A 37,000-square-foot office building in Mission Hills sold in February for $5.4 million. The Moss building at 10200 Sepulveda Blvd. was purchased by Koulakis Trust of Sylmar from Moss Group of Encino. San Fernando Valley Office Market At a Glance Inventory 21.9 million square feet Under Construction 0 Class A Asking Rents $2.21

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