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Thursday, Dec 8, 2022
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Vacancy Falls, Rates Rise Across Valley Markets

Finally, there was good news to report about office real estate across most of the Valley markets in last year’s fourth quarter. Vacancies fell, rents rose and some spaces that had sat empty were filled by large tenants. Office brokers reported positive activity, particularly for Glendale, Burbank and the Calabasas area. In Glendale and Burbank, office tenants showed a growing interest in being close to rich retail and entertainment hubs, said CBRE Group Inc. Executive Vice President Doug Marlow. The Glendale office market is “hitting on all cylinders right now” with the lowest vacancy rate since 2002, Marlow said. Colliers International reported an 11.6 percent vacancy rate. “It was a big move,” Marlow said. “The market absorbed over 286,000 square feet (during the year).” He attributed it to a “renaissance” initiated by the Americana at Brand and Glendale Galleria followed by huge apartment construction – 3,500 units completed recently with more to come – creating a 24/7 lifestyle. “There’s inward migration from all over the city right now,” Marlow added. “That has served to make Glendale more resilient and more diverse.” Office rents are up 35 percent since the bottom of the Great Recession, and he predicted they will continue ticking up. Noteworthy fourth-quarter leases included entertainment firm Bunim/Murray Productions that took about 85,000 square feet at 1015 Grandview Ave.; PSI Services, which signed for 25,000 square feet at 611 N. Brand Blvd., and Australia’s Cotton On Group, which leased 18,000 square feet at 400 N. Brand Blvd. While not as dramatic, Burbank’s office market vacancy dropped also, Marlow said. Colliers reported a 12.9 percent vacancy rate for the quarter. But numbers can deceive, Marlow explained, because they don’t show when leases are signed, only when a tenant occupies a space. Burbank’s real vacancy rate is probably closer to 7 percent, he added. Once tenants begin moving into their new spaces by the summer, rents will likely rise, Marlow said. Noteworthy deals included Entertainment Partners, which leased 130,000 square feet at 2950 N. Hollywood Way, and WeWork that took 75,000 square feet at 3900 W. Alameda Ave. Industrial report The lack of industrial space and heated demand for it in the San Fernando Valley submarkets continued to make it hard for businesses to find new space during the quarter. Perspective warehouse tenants will soon find relief in the Conejo Valley. Developer Sares Regis Group in Irvine plans to bring 500,000 square feet of industrial space onto the market in nine new buildings on 29 acres. The project is set to start construction later this year in Thousand Oaks. Steve Fedde, senior vice president with Sares Regis, said there is a lot of pent-up demand from industrial users who can’t find sufficient space in the San Fernando Valley. “Buildings just don’t exist,” Fedde said. According to Colliers fourth-quarter data, only 0.3 percent of 7.2 million square feet of industrial property in the Conejo Valley is vacant. Rents there jumped significantly to 98 cents a square foot from 75 cents a year ago. Erik Larson, executive director with Cushman & Wakefield, said a client of his is considering taking space in the new buildings once finished. The Central Valley industrial market has a below 1 percent vacancy, and the San Fernando Valley as a whole is “so good it’s bad,” Larson said. Colliers reports less than 2 percent vacancy in the Valley submarkets. Building sales are strong due to owner/user demand, low interest rates and lots of foreign capital. One example Larson gave is 10319 Norris Ave. in Pacoima, an 8,000-square-foot building that sold during the quarter for $263 a square foot, up from $128 a square foot in 2012. “From my perspective, it is a lot (of an increase),” he added. Health care expansion University and hospital systems are pushing to become more visible across all the Valley region, said Angie Weber, a vice president with Colliers International focusing on medical office. They are buying doctors’ groups to create large practices, and that’s changing the climate of the market, according to Weber. When the systems purchase the practices, they consolidate them into larger spaces. Medical office rents are higher, deals take longer to transact and work out and tenant improvements cost more, Weber said. “Medical is a strong presence everywhere, because everybody is trying to be like a spider and expand,” she said. During the quarter a 25,000 medical office building at 4323 Riverside Drive in Burbank sold for $14.3 million, and the three-building Tarzana Professional Care at 1891 Burbank Blvd. sold for $32 million.

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