The San Fernando Valley office market continued to see rising vacancies and growing negative net absorption in the fourth quarter.
According to Colliers data, the Valley had a vacancy rate of 23.6% and negative net absorption of 337,913 square feet. West San Fernando Valley had the highest figures at 27.6% vacancy and negative 340,168 square feet in net absorption. East San Fernando Valley ranked second highest with 23.1% vacancy and negative 36,008 square feet of net absorption. Central San Fernando Valley had a 19.1% vacancy rate and 38,263 square feet net absorption.
In the Tri-Cities, Burbank, which historically has the lowest vacancy, maintained that ranking with a 16.5% vacancy rate in the fourth quarter, even though the vacancy rate climbed up from 11.7% in the previous quarter. Burbank showed negative 347,773 square feet in net absorption for the quarter.
“Vacancies have gone up,” said William Boyd of Kidder Mathews. “The 16.5% vacancy in Burbank is unique historically. This time last year, it was at 6%. It’s somewhat startling, but no one is going to panic because Burbank historically has always shown that the entertainment industry will backfill and lease that much vacancy.”
Boyd describes the rise in vacancy in Pasadena, also part of the Tri-Cities submarket, as eyebrow-raising.
“For Pasadena to be at 25% vacancy, none of us can recall the last time it was at 25% vacancy,” Boyd said.
“It’s gone from 19% vacancy a year ago to now a 25% vacancy at the end of the fourth quarter, and the average quoted rental rate went up 6 cents for the month,” he added. “The basic principles of the market are somewhat skewed, because with increased vacancy, historically we haven’t seen increased quoted rental rates and it just defies logic. The reason that happens in some markets is where ownerships have a perception of what they need to achieve versus what the market is actually supporting.”
Glendale reached a 25.2% vacancy rate in the fourth quarter.
After a white-hot run in 2021, the industrial market in the San Fernando Valley cooled down in the fourth quarter.
Still the North Los Angeles industrial market remains relatively solid as vacancies remain in the single digits in most markets, according to Colliers’ fourth-quarter data.
With nearly 90 million square feet of inventory, the San Fernando Valley posted 0.6% vacancy, compared to Los Angeles County’s 860,277,102 square feet in inventory hovering at 0.9% vacancy.
West San Fernando Valley showed the highest uptick at 0.7% while Central and East San Fernando Valley each held at 0.6%. Ventura County posted slightly higher vacancies averaging 1.1% with the Conejo Valley submarket skewing highest at 4.1%. Antelope Valley posted 2% vacancy while Santa Clarita had only 0.2%.
Mike Tingus of Lee & Associates L.A. North/Ventura, however, said industrial sales have softened.
“We had a property marked for $6 million, we’re going to put it out on Monday for $4.5 million,” Tingus said. “The market’s not really hot. Now I’ve got to bring that range down. It’s within the range where a potential tenant or buyer will come and look at the property.”
So what is behind the industrial market’s slowdown?
“It’s a combination,” Tingus said. “Once you got past the second quarter of last year, people are focused on the mid-term elections. People capitulate; if you have to do something you do it, if you don’t have to do it, you sit tight. As interest rates went up, inflation was spiking, the mid-term (elections) coming up, we see things kind of slow. You just have people who were waiting to see what happens.”
Last year also saw the cost of materials increase significantly for manufacturers. “Going into 2023, you’ll see increased debt of businesses and individuals,” Tingus said. “It’s going to have an effect this year. People will be a lot more cautious on making capital improvements and signing new leases.”