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Thursday, Feb 22, 2024

The Quiet Before the Storm

Across the San Fernando and Santa Clarita valleys, the drivers of office and industrial leasing continue to be the twin E’s — entertainment and e-commerce. Logically, office and industrial space, already relatively limited, continue to see high rents matching high demand. In the industrial sector for 2019’s fourth quarter, the San Fernando Valley with 90 million square feet in inventory, has seen an overall 0.7 percent vacancy, down from 1.1 percent a year previous. All of the 323,300 square feet of the industrial inventory under construction is taking place in the west San Fernando Valley. In Ventura County, the western section of the county currently has 41.9 million square feet of inventory, totaling almost half of the entire San Fernando Valley’s inventory. West Ventura County’s vacancy registered 2.0 percent for 2019’s fourth quarter, up from 1.3 percent a year ago. In terms of price, average industrial rents in western Ventura County were 65 cents in the fourth quarter, compared to 92 cents in the San Fernando Valley, according to Colliers International data. “It’s not much of a change in the vacancy – that’s almost normal attrition,” said John Erickson, senior vice president of Brokerage Services at Colliers International’s Valencia office. “It’s more or less business as usual.” The office space has also been relatively consistent. Burbank, with its inventory of nearly 7 million square feet, saw vacancy drop to 8.1 percent in the fourth quarter from 2019 from 10.6 percent in the third quarter. In the San Fernando Valley, which has a 22 million square feet of office, vacancy dropped nominally from 11.3 percent to 11.1 percent. Content-creating tenants Kevin Fenenbock, a specialist in office leases in the San Fernando and Santa Clarita valleys who also works at Colliers’ Valencia headquarters, said that the 2019 Q4 numbers are basically flat and not earth-shaking, but there will come a point when companies will have little choice but to fan out and create hot submarkets in other parts of the Valley region. “Between North Hollywood and Woodland Hills, we’ve seen some pretty strong rental rates increasing mainly by content post-production. Those guys are pushing for product in that area, driving rents up,” Fenenbock said. Fenenbock chalks up the San Fernando scene to “so much demand, so little vacancy,” he said, which forces new tenants to go into Sherman Oaks and Encino, “displacing a lot more traditional office users and forcing them to move west,” he said. But getting younger companies to ink leases outside of the Burbank-North Hollywood axis may be a slow train. While companies are moving west across the Valley, “we’re not seeing a north migration yet,” Fenenbock said. “We’re not seeing these guys going to Northridge. Not the entertainment guys.” Despite Facebook Inc. leasing up some 70,000 square feet at the Shubin-Nadal Realty Investors andDRA Advisors LLC joint-ventured The Mix at Harman campus in Northridge, “it really never gained a lot of traction,” he added. Fenenbock believes that the Mix at Harman’s presence in Northridge should have sparked a submarket trend. Unfortunately, the Northridge location is still proving to be a detriment for some. The problem, continued the Colliers broker, is that “you go outside that campus and it’s a little bit challenging. That area still has to do some work to attract that entertainment market. … The amenities don’t look and feel quite there yet.” For now, the pressure valve for tenants seems to be toward the west. However, eventually office-users will have no choice but to pursue more out-of-the-way properties in outlier markets around the Valley. “That’s the hope,” he said. “We will see more migration north and west as long as (entertainment) content production continues.” Fenenbock added that waiting for the tenants before refurbishing a property poses a challenge. It’s smarter for landlords to upgrade in order to secure the tenants. “It’s much more palatable for tenants to make that move,” he said. “It needs to be seen today to get people excited.” One very successful redevelopment which Fenenbock has handled is the Elbar-owned The Ranch, a 12-acre site on the border of Sherman Oaks and Van Nuys which is currently seeing a building-by-building renovation that will wrap up within the decade. Laid out something like a long rectangle, Fenenbock said that Elbar took a chance on the industrial part of town and “that has been extraordinarily successful.” Initially, Fenenbock admitted, “it was pulling teeth getting people to get there,” but now the complex is 100-percent occupied by such young companies as FloQast, T-Cure, fashion company Doen, post-production firm FuseFx, and VSI, which does audio work for Netflix Inc.

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