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Monday, May 23, 2022

Tenants Calling Shots as Landlords Still Forced to Sweeten Pot

The small office market in the Santa Clarita Valley continued to inch in the right direction during the second quarter. The vacancy rate in the market dropped seven tenths of a point to 16.2 percent, according to the L.A. office of Colliers International. Average Class A asking rents remained flat at $2.33, helping the market absorb 14,200 square feet of space. Broker Ryan House said that despite the drop in vacancy, the market remains in tenant control. “The market is definitely tightening up, but they haven’t really tightened the reins on tenant improvement and free rent,” said House, vice president at the Valencia office of Jones Lang LaSalle Inc. “They’re still willing to negotiate.” One of the more substantial moves came in April when the California Board of Equalization opened a regional center for businesses in the city. The 22,000-square-foot Santa Clarita office at 25360 Magic Mountain Parkway is set to partially replace the tax-gathering agency’s Van Nuys office. Accounts served in Van Nuys can also be handled in Glendale. Still, House expects the market to remain flat for the rest of the year. “Where we’re at now will be the same in three or four quarters and we’ll be having the same conversations,” he said. However, there is a bright spot in the Santa Clarita Valley’s residential development. In April, Los Angeles home builder KB Home paid nearly $70 million for 77 acres of land in Santa Clarita. The land was purchased from Toll Brothers Inc. of Horsham, Pa. The property contains 278 single-family lots plus some open space. KB Home plans to build two new communities, Canyon Heights and Canyon Crest. Development on the property is currently underway, with opening planned for later this summer. If home construction continues to pick up, it could make a dent in office vacancy rate. During the housing boom, construction firms, real estate agents, title firms and related businesses filled offices throughout the valley. In the industrial market, all the talk is about impending construction. With somewhere in the neighborhood of 6 million square feet of industrial development fully entitled, the Santa Clarita Valley is set to explode – though there are some questions about if there are enough tenants to fill all the new product. (See main story page xx). For now, the deck chairs of existing stock are being shuffled, with vacancy flat at 5.8 percent in the quarter as 244,000 square feet was absorbed by the market, the equivalent of about two small warehouses. Still, that appeared to be enough for landlords to hike up asking rents 11 cents to 53 cents a square foot, according to Colliers. John Erickson, senior vice president at the Valencia office of Colliers, said the rent increase has not gone over well with tenants. “Landlords have been trying to push back for the last six to nine months, but demand is still just tepid enough to not let them,” he said. Even so, there is clear evidence that landlords think the market is improving. Among the largest deals of the quarter was the sale of the 52,500-square-foot Valencia Industrial Centre, which was picked up by LNR Property Corp. The Miami Beach investment firm paid First American Financial Corp. of San Diego $4.1 million for the 27655 N. Avenue Hopkins building in May. And here’s the kicker: the single-story industrial warehouse was vacant at the time of the sale, according to real estate data firm CoStar Group Inc. – Elliot Golan Main Events – In April, Los Angeles home builder KB Home paid nearly $70 million for 77 acres of land in Santa Clarita. The property was purchased from Toll Brothers Inc. of Horsham, Pa. and contains 278 single-family lots plus some open space. KB Home plans to build two new communities, Canyon Heights and Canyon Crest. Development is currently underway, with opening planned for later this summer. – The 30-unit Beneda Lane Apartments in Canyon Country traded hands in April for more than $5.7 million. The 18701 Beneda Lane complex was bought by Douglas Berry of Mill Valley from James Hayes of Agua Dulce. The building was constructed on nearly 2 acres in 1988 and was 98 percent leased at the time of the sale. – A 9,500-square-foot specialty school building in Valencia was acquired in May for $4.5 million. The 25421-25443 Orchard Village Road building was sold by Pinecrest Development Enterprises Inc. of Sherman Oaks to Red Hook Charter School I LLC of Los Angeles. The building was constructed in 1975 on about 1.7 acres. – LNR Property Corp. of Miami Beach purchased the 52,500-square-foot Valencia Industrial Centre for $4.1 million. The 27655 N. Avenue Hopkins building was sold in May by First American Financial Corp. of San Diego. The single-story industrial warehouse was vacant at the time of the sale, according to CoStar. – William S. Hart Union High School District in Santa Clarita purchased a 32,000-square-foot distribution building in May for $2.4 million in an all-cash deal. The 26308 Spirit Court flex building was sold by JSB Development of Valencia, which finished work on the building in the second quarter, according to CoStar. Santa Clarita Valley Office Market At a Glance Inventory: 2.19 million square feet Under Construction: 0 Class A Asking Rents: $2.33

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