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Real Estate—Brokers Hold On as High Vacancy Rates Grip Market

Ask almost any broker in the San Fernando Valley about business, and you’ll hear the same refrain: “Everyone’s on hold.” Now, with office vacancy and absorption rates tabulated for the second quarter, it turns out that, rather than “on hold,” the market is just holding on. Office vacancy rates, which began to inch up in the Valley in the first quarter of the year, moved even higher in the second quarter. And the negative absorption recorded in the first quarter of the year has deepened, spreading to still more submarkets. The overall vacancy rate for office space in the Valley reached 14 percent, the highest level recorded in several years, according to data just released by Cushman & Wakefield. Some traditionally strong submarkets Thousand Oaks and Westlake Village in Conejo Valley, Calabasas and Woodland Hills in the West Valley and Sherman Oaks in the Central Valley saw vacancy rates skyrocket well into the double digits, the Cushman & Wakefield report revealed. Thousand Oaks and Westlake Village recorded vacancy rates of 20.5 percent and 20 percent respectively. In Calabasas vacancies reached 12.3 percent for the period. Woodland Hills registered a 14.7-percent vacancy rate and Sherman Oaks reached 11.8 percent. The good news is that Warner Center, tabulated separately from Woodland Hills in the Cushman & Wakefield data, stayed under the double-digit benchmark, with a 9.3-percent vacancy rate. In all, the Valley saw absorption rates reach a mere 53,732 square feet, a far cry from the 149,480 square feet absorbed in the Valley in the second quarter last year, according to Cushman & Wakefield. And many of the same submarkets that posted high vacancy rates also posted negative absorption rates, meaning there was more space vacated than was leased in the second quarter. Specifically, Westlake Village recorded negative absorption of 2,549 square feet; Agoura Hills recorded negative absorption of 10,662 square feet; Woodland Hills registered a negative 53,261 square feet; and Encino saw absorption dip to a negative 28,796 square feet. Brokers who are completing deals are reporting that many tenants are asking for shorter leases, unwilling to bet on an economic upswing anytime soon. “One thing I’m noticing is people don’t have as much confidence in the economy,” said Angie Weber, a vice president with Daum Commercial Real Estate Services. Where the standard lease recently was of five to seven year duration, many tenants are now asking for terms of two to five years. “There’s a lot of people requesting one year,” Weber added. Also representative of the short-term thinking, a number of companies are seeking subleases, where they can get better deals provided they are willing to forego tenant improvements to customize the space to their needs. Duane Cody, a director with Cushman & Wakefield, said he is seeing more companies in the market for sublease space, which allows them to expand or contract without making a long-term commitment. “If you’ve got companies unsure of their needs, if they take a sublease they can re-evaluate and re-do their space in a shorter time frame,” Cody said. Warner Center Sale Brokers around town are reporting that the owners of Warner Center Properties are about to put the complex on the market. It is believed that Steve Silk and Jay Borzi, brokers with Secured Capital Corp., have been hired to market the huge complex, which includes 2.3 million square feet of high-rise and low-rise property that forms the core of the Warner Center business district. The complex is owned in a joint venture by Alaska Permanent Fund Corp. and Harvard University’s endowment fund, which tried last year to put the property up for sale but could not reach agreement on how to market it, brokers said. At current market values, Warner Center Properties could fetch $350 million or more, but because it is so large, the number of prospective buyers is limited, brokers said. Brokers said that new ownership would not likely change the character or tenant mix of the properties, although it could affect the companies that manage the complex, asset managers AEW Capital Management LP and property managers Transwestern Commercial Services. Eyeing More Space GTRAN, a developer of optical transmission products, has leased 24,329 square feet in Newbury Park to expand its research and development operation. The seven-year lease at 2651 Lavery Court is valued at more than $1.5 million. GTRAN, which has corporate headquarters in Westlake Village, expects to renovate the building for its expansion. GTRAN was represented by Tom O’Brien of Coldwell Banker Paller Co. The landlord, C-F Investment Co., was represented by Fred Ferro, Alex Woronovich and J.P. McDonald of NAI Capital Commercial. Fair Exchange A local investment company has acquired a 17,000-square-foot retail center in Northridge and a 5,000-square-foot industrial facility in Thousand Oaks. Durose Corp., based in Northridge, made the investments following the sale of a Sun Valley mobile home park which it owned. The company reinvested the proceeds of that sale in the two new properties in an all-cash exchange transaction valued at a combined $2.7 million. The Northridge property, at Reseda Boulevard and Parthenia Street, is occupied by Auto Zone and Smog Test Only. The industrial building, at 102 Cunningham St. in Thousand Oaks, is occupied by Skeeters Performance Shop. Joe Lopez and Jill Lopez of Westcord Commercial Real Estate Services represented Durose in both transactions and, in the Northridge deal, also represented the seller, M & A; Gabaee. The seller in the Thousand Oaks deal, TR Funding, was represented by Rick Principe of Westcord, who is also a principal in TR. Senior Reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at sgarcia@sfvbj.com.

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