74.9 F
San Fernando
Friday, Jan 27, 2023
-Advertisement-

Down in the Valleys

Following a rough 2008, the commercial real estate market in the greater Valley area continued to deteriorate in the first quarter of 2009. The total office vacancy rate in the San Fernando Valley and Ventura County hit 17.3 percent, according to Colliers International, compared to 11.7 percent in the first quarter of 2008. Weighted asking rental rates were $2.47 per square foot per month, compared to $2.55 in Q1 2008. Industrial sales and leasing activity reached a new low, dropping 45 percent from the 1.1 million square feet of activity seen in the fourth quarter of 2008, and dropping 64 percent from the 1.6 million square feet of activity seen a year ago, says Colliers. The total available rate for industrial was 7.3 percent, up from 5.7 percent in Q1 2008. Colliers’ office numbers are based on primarily multi-tenant properties 30,000 square feet and larger and do not include medical space and single tenant occupied properties. Industrial tracks warehouse/distribution and manufacturing properties. This year’s commercial real estate brokers list on page 29 in this issue of the Business Journal generally shows that numbers are down for those firms. A handful of key players who normally participate in the list did not disclose their financial data by press time. The Journal published a directory instead of a ranked list. On the bright side, deals are happening and industry pros say there has been a recent up-tick in activity. While every market in the greater Valley area has its challenges, they all have their strengths, too. SAN FERNANDO VALLEY “While certainly things are not good right now, at the same time, we’re not saying, ‘the sky is falling,'” says Mike Zugsmith, chairman of NAI Capital. Total office vacancy rates were 13.3 percent in the East Valley, 12.6 percent in the Central Valley, and 16.2 percent in the West Valley in the first quarter of 2009, according to Colliers. Net absorption was -55,500 sf, -149,000 sf, and -296,700 sf, respectively. Net absorption is the change in occupied square feet for a given period of time, and for the Colliers report, includes the impact of change in vacant space available for sub-lease. Total industrial vacancy rates were 2.4 percent, 2.4 percent and 4.0 percent for the same areas. Net industrial absorption was -190,100 sf, -66,900 sf, and 49,700 sf, respectively. Zugsmith has seen a recent up-tick in activity as well as signed leases in office, retail and industrial. But expectations between buyers and sellers have yet to equalize. “There’s significant pent up demand sitting on the sidelines waiting to see what happens,” he says. Sales and lease velocity is sluggish to non-existent in the $15 million-plus asset range, says Scott Lamontagne of Marcus & Millichap. Tight credit markets and institutional investors laying low are fueling that trend. There’s minimal activity in the $6-$10 million asset range. But there is activity in the $6 million and less property market, says Lamontagne. In that class, some seller financing is available, people are assuming existing financing, and buyers are coming up with other “creative” financing options. There’s pain in the apartment sector for owners who bought high and are getting hit by increased vacancy rates, says Lamontagne. It’s taking longer to rent apartments and some previously high-demand areas, such as Studio City, are losing traction. Rickey Gelb, general partner of Gelb Enterprises, a property management and real estate development firm, says landlords are cutting back on making major capital improvements. They are also doing more 1-month and 1-year leases. Some 3+ year leases include “escape clauses” where tenants are able to cancel the lease, with 90 days notice, if an anchor tenant moves out. Highlights: – Normandy Real Estate Partners and Five Mile Capital Partners won the Uniform Commercial Code auction for the 770,773 square feet, 35-story office property at 10 Universal City Plaza in Universal City. The bid was for $10.1 million and the acquisition of a $294.8 million mortgage. – J.H. Snyder Company and CRA/LA are developing 180,000 square feet of office space at 5250 Lankershim Blvd in North Hollywood. – Howard A. Keyes Trust purchased a 49,600 square foot industrial property at 14540 Oxnard St. in Van Nuys. Chandler Properties was the seller. The sale price was $9.3 million or $187 per share foot. – ASI Entertainment Inc. leased 20,900 square feet of Class B office space at 12020 Chandler Blvd. in North Hollywood. SANTA CLARITA VALLEY The Santa Clarita Valley is suffering from a glut of office space, says John Cserkuti, senior VP of NAI Capital. A few new office developments that came on-line in the past 12-18 months injected hundreds of thousands of square feet into the market. “Very little of that has been absorbed,” says Cserkuti. The total office vacancy rate in Santa Clarita Valley was 27.9 percent, and the total industrial vacancy rate was 2.9 percent in the first quarter, according to Colliers. Net absorption for office was -24,700 square feet, and 54,000 for industrial. Santa Clarita Valley is the only market to experience positive net absorption for industrial. The city’s enterprise zone is having a positive effect on the market and some of the area’s aerospace companies are expanding and leasing more industrial space, says Yair Haimoff, VP of NAI Capital’s industrial division. The retail vacancy rate was 6.3 percent in the first quarter, according to the City of Santa Clarita. Laura Biery of the City of Santa Clarita says a number of chain stores like Lowe’s and California Pizza Kitchen have recently opened their doors. And Westfield Valencia Town Center is working on a 234,500 square feet expansion. The activity is fueled by the city not being saturated with retail space and people continuing to move to the area because of its quality schools, low crime, and high number of college educated residents, she says. However, unanchored neighborhood retail projects, many in the 30,000-60,000 square feet range, are struggling, says Czercuti. Occupants are unwilling to pay premium rents for locations that have less draw and exposure than other properties, and landlords are trying to bridge the gap. Highlights: – Westfield Valencia Town Center is working on a 234,500 square feet expansion that will provide space for 40 specialty shops and four restaurants. A portion will also be used for Macy’s. – Cramar Holdings LLC is developing 103,500 square feet of office space at 17901 Soledad Canyon Road in Canyon Country. – Aerospace Dynamics International is talking about increasing its 400+ employees, says Biery. The company also recently leased 28,000 square feet of industrial space on Avenue Stanford in Santa Clarita. – Harley-Davidson leased 24,000 square feet of industrial space in Centre Pointe Business Park. ANTELOPE VALLEY Location is everything in commercial real estate. And Antelope Valley got stuck with the short end of the stick for this economic downturn. “That market has just been hit hard,” says Peter Steigleder, principal of Lee & Associates. Industrial vacancy rates are 5.2 percent in Lancaster, and 10.5 percent in Palmdale, according to Mel Layne, president of the Greater Antelope Valley Economic Alliance. Office vacancy rates are approximately 25 percent and the retail vacancy rate 15-20 percent, says Susan Champion of Lee & Associates. Antelope Valley has generated much of its business growth from out-migration from the San Fernando Valley. But the Santa Clarita Valley will likely be the first to benefit from any up-tick in the economy, simply because its closer to the valley, says Steigleder. “I think the commercial real estate market in the Antelope Valley will grow, but it’s going to be a long-term deal where Santa Clarita will have to fill up first,” he says. Champion says there’s some “tire-kicking” activity going on. Some are new companies and others are looking to downsize. Tight credit markets are slowing the pace of some deals, she says. Demand is higher for smaller spaces. “Lease rates and sales prices have come down,” says Champion, “which opens the market for people looking to start a business or make a move.” The area’s relatively low housing prices are also appealing to some new companies, she adds. Champion says medical use companies have been circling the market in anticipation of the completion of the new 239 bed, approxiimately 250,000 square foot Palmdale Regional Medical Center. Layne says an increasing number of clean energy technology companies are inquiring about the area. And some of the area’s aerospace companies are continuing to hire engineers, technicians, and other high paid workers. Highlights: – The Palmdale Regional Medical Center is currently under construction. The facility is approximately 250,000 square feet and will provide 239 licensed beds at full capacity. CONEJO AND SIMI VALLEYS Over the past month, Bank of America has been replacing Countrywide Financial signage throughout the Conejo Valley. But new logos do little to comfort brokers dealing with the flood of properties on the market from Countrywide’s meltdown “Countrywide is the biggest news in the area sometimes getting too much news,” says Tom Festa, senior vice president with DAUM Commercial Real Estate Services in Woodland Hills. “But it’s causing more turmoil in the marketplace than anything else.” The total office vacancy rate in Conejo Valley was 19.8 percent, and total industrial vacancy rate 3.5 percent in the first quarter of 2009, according to Colliers. Net absorption was -39,400 sf for office, and -78,400 sf for industrial. Festa says the problem with many former Countrywide properties is they are geared toward larger users. The positive, for tenants at least, is the glut has driven prices down. A bright spot is that Agoura Hills-based DTS Inc. recently purchased an 86,000 square foot Countrywide office building at 5220 Las Virgenes Road in Calabasas, for $15.6 million. There is more sales and lease activity in the 3,000 to 5,000 square feet category, says Festa. Cory Richmond, of Lee & Associates, says there’s activity in the 1,000 to 2,500 square feet market. And tenants are definitely taking advantage of free rent offers and moving allowances. Total industrial vacancy for Simi Valley/Moorpark was 4.9 percent in the first quarter of 2009, up from 3.9 percent in the fourth quarter 2008. Net absorption was -99,800 square feet, according to Colliers. The office market has also seen an increase in vacancies. Deterioration of the industrial and office markets started hitting Simi Valley/Moorpark 6-9 months ago, says Bob Kahn, 1st vice president for CB Richard Ellis’ office for Ventura County. Sale prices and lease rates have since declined, and office has taken the brunt of the downturn. New office products coming on-line recently have affected the market. Retail landlords have dropped rates 20-25 percent, says Gary Seaton, VP and manager of the Simi Valley office of NAI Capital. But there is some activity in medical office leases. Seaton says one recent 12,000 square feet medical office lease fetched fair market value, and there’s another 5,000 square feet deal in the works. “Rents decreasing, prices decreasing, demand softening, supply increasing, and businesses downsizing or shutting down have all factored in,” says Kahn. But like brokers in other markets, Kahn has seen increased activity lately. He says even though the activity is not huge, it’s “a bright spot.” Conejo highlights: – Countrywide Home Loans, a subsidiary of Bank of America, sold an 86,000 square feet office property to Agoura Hills-based DTS Inc. The sale price for the property, located at 5220 Las Virgenes Road in Calabasas, was $15.6 million. – Agoura Jacobsen Family Holdings LLC completed a 78,600 square feet office development at 29899 Agoura Road in Agoura Hills. – The Foundation Group sold a 51,400 square feet Class A medical office building at 5051 Verdugo Way in Camarillo. EBREM, LLC was the buyer. The sale price was $15.4 million or $300 per square foot. Simi/Moorpark highlights: – The first phase of Patriot Commerce Center, a 300,000 square feet Class A business park, comes on-line April 23. – Puchlevic Trust purchased an 18,100 square feet industrial property at 780 Easy Street in Simi Valley. The sale price was $2.75 million, or $152 per square foot. – An undisclosed start-up company recently leased 15,000 square feet of industrial space in Moorpark. – A 12,000 square feet medical office lease recently fetched fair market value and there’s a 5,000 square feet lease deal in the works. – An organic pet food company leased 9,000 square feet industrial in Simi Valley.

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-