By SHELLY GARCIA Staff Reporter A lack of product and high prices brought commercial real estate leasing activity in the San Fernando Valley to a dead stop in the first quarter of 1999. With the exception of the Conejo Valley, which actually saw vacancies rise, there was virtually no movement in office leasing for the period, the second consecutive soft quarter for commercial real estate. “We have a lot of inquiries and not a lot of commitment,” said Bill Inglis, first vice president of CB Richard Ellis Inc. “I have toured a lot of people through properties lately, but I haven’t had anyone say, ‘Yup, I want it.’ ” Overall, vacancy rates for office space in the San Fernando Valley rose to 13.1 percent in the first quarter of 1999, up from 12.2 percent on Dec. 31, according to Cushman & Wakefield Inc. The increase is largely because of new space that came into the market in the Conejo Valley and West San Fernando Valley. The biggest change came in the Conejo Valley, where the office vacancy rate rose to 13.0 percent from 8.6 percent at the end of last year. Brokers attributed the increase to new developments that are coming on line. In the West Valley, developments such as Regent Properties’ West Hills Corporate Village brought the vacancy rate to 14.3 percent as of March 31, up from 13.7 percent at year-end 1998. Brokers said no companies had vacated major blocks of space, and they expect the new spaces, especially in the Conejo Valley, to fill quickly. In the East Valley, vacancy rates measured 8.2 percent in the first quarter, down from 8.3 percent in the final quarter of 1998. Central Valley office vacancies increased slightly to 14.3 percent in the first quarter of 1999 from 14.1 percent in the prior quarter. In the Santa Clarita Valley, vacancies also rose slightly to 29.1 percent in the most recent quarter, from 28.5 percent in the final quarter of last year. The new space that came on line during the first quarter represents only a tiny fraction of the overall market. The real change in availability is not expected for another year, when several developments, including the expansion of the Prudential office complex and construction of 20th Century Plaza in Warner Center, are expected to bring big blocks of office space onto the market. Until those developments are completed, the lack of availability is expected to keep leasing activity light. “Conservatively, our assumption is there will be one-half million square feet available 13 months from now,” said Ron Wade, associate director of the Los Angeles North office of Cushman & Wakefield. “But the short-term picture is, we’re continuing to see a tightening market and upper pressures on rents.” With little in the way of new space coming onto the market and virtually no turnover, brokers said they don’t have many options to show prospective tenants and the available spaces are expensive. “Take the West Valley, for example. Rents have gone up considerably, and so some of the lack of transactions is due to sticker shock,” said Jim Lindvall, senior vice president at Grubb & Ellis Co. Lease rates for all classes of office space in the West Valley rose to $1.83 per square foot from $1.79 in the fourth quarter of 1998, according to Cushman & Wakefield. The biggest jump came in the Conejo Valley, where lease rates for all classes of buildings rose to $1.88 per square foot for the first quarter of 1999 versus $1.70 in the last three months of 1998. Lease rates in the East Valley dipped slightly to $2.02, from $2.05 in the quarter ended Dec. 31. And in the Central Valley, lease rates rose slightly to $1.79 from $1.77 in the prior quarter. But brokers said the quarterly numbers do not reflect the extent to which rents have risen in many parts of the Valley over the past several years 10 percent and more for many buildings in the last year alone. Bill Inglis, first vice president with CB Richard Ellis Inc., said he was recently showing Warner Center space to a tenant in Chatsworth who was seeking a new location with better amenities. “They were looking for a $1.50 deal, and I’m at $2.10,” Inglis said. “They had no idea it would be 30 percent more.” Many tenants currently in the market last signed leases when there was an abundance of available space. “For somebody who signed a lease five years ago and is now back in the market looking for space, it’s a completely different world,” Lindvall said. “Last time as a tenant they held all the cards. Now the tables have been turned.” Brokers like Lindvall believe leasing activity will pick up once tenants get over the initial sticker shock. They say many companies have undergone considerable expansion and have no choice but to pay the higher prices for new space. But others think the reluctance to make decisions on new space over the past two quarters may have more to do with the signs of broader economic changes on the way. “I’m not sure (activity) will pick up,” said Inglis. “If I were the CEO of a company, I would say, ‘Wow. We have a crazy stock market. We have noises that we’re having inflation. We have noises that they’re going to raise the interest rate. We better think about reexamining our game plan for the future.’ ” Vitamin Boost Pharmavite Corp., a manufacturer of nutritional supplements sold under such brand names as Nature Made, Nature’s Resource and others, signed a deal to lease 740,000 square feet of space in the Vista Business Park in Valencia. The 10-year lease comprises four buildings developed by Investment Development Services Inc. Pharmavite is occupying one of the buildings immediately and another building later this year. The company plans to complete its relocation, which involves 600 employees, in 2000. Pharmavite currently houses its production and product development operations in San Fernando. Its West Coast distribution center, now in another Valencia location, will also be relocated to Vista Business Park. Jim Linn and Nigel Stout of Grubb & Ellis represented Investment Development Services and Kennedy Associates Real Estate Counsel Inc., the co-owners of Vista Business Park. Eric Olofson and Satoru Jo of Cushman Realty Corp. represented Pharmavite. News and notes Sterling Software signed a 10-year, 135,000-square-foot lease in the West Hills Corporate Village, according to officials at Regent Properties and Shamrock Holdings, co-developers of the property. CEC Entertainment Inc., which operates Chuck E. Cheese pizza parlors, expanded its Sun Valley restaurant to 14,296 square feet.
