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Friday, Jun 9, 2023

Uncertainty Slows Leasing

A period of stagnation has settled over the office market in the San Fernando and Conejo valleys. The vacancy rate crept up three tenths of a point during the fourth quarter to 16.9 percent, though it was still down half a point from the doldrums of a year ago, according to data from Jones Lang LaSalle Inc. The culprit? The market gave back nearly 120,000 square feet, and commercial office brokers agree the market won’t improve until employers start hiring. And employers won’t add to their staffs and expand facilities until they are sure about the economy and issues such as the federal budget, health care costs and tax-rate changes. “It keeps things from breaking out and so (the office market) bumps along at a caution clip,” said Dan Sanchez, executive vice president at Jones Lang LaSalle in Santa Clarita. More office space became available in the Conejo Valley and central and east portions of the San Fernando Valley during the fourth quarter. Only the West Valley had net absorption with 48,531 square feet taken off the market. Contributing to that number was a Vermont marketing company that took 7,800 square feet in Warner Center, said Jay Rubin, a principal in the Calabasas office of Lee & Associates LA North Inc. The move by the Vermont company was one of several that Rubin was aware of involving an out-of-state business that came to California. A Colorado financial services firm also recently took space in Warner Center. “The state and city may not be the most business friendly, but we still have a great employee talent pool and that is what continues to attract companies,” Rubin said. Still, many of the deals taking place are what Rubin characterized as a game of “musical chairs” among existing tenants moving from one location to another. The Santa Clarita Valley’s office market was a bright spot. The vacancy rate fell to 16.4 percent, from 21.4 percent in the third quarter and 23.4 percent in the fourth quarter 2011. Nearly 140,000 square feet was absorbed, and it was the only city to have new construction started during the quarter. “It is small market so a couple of deals can sway the number,” Sanchez said. The deals were helped along by landlords willing to negotiate. In Santa Clarita, asking rents fell 2 cents since the third quarter to $2.40 a square foot. Another positive trend of note was building sales. Jeff Albee, a senior vice president at Colliers International in Encino, said the combination of depressed property prices and low interest rates were driving it. “Alternative investments such as apartment buildings are offering low returns,” Albee said. “The spread or gap on office building investments versus multi-family is getting wider. It is a good time to get in.” Kaiser Foundation Health Plan bought a 116,000 square-foot building at 26877 Tourney Road in Valencia for $10.2 million, or $87 a square foot. Kaiser plans to vacate its existing offices in the area and move into the Tourney Road building, Sanchez said. Another major transaction involved the $48 million sale of the Academy Building at 5200 Lankershim Blvd. in North Hollywood. Jamison Services Inc., a Los Angeles real estate investment company, sold it to Kennedy Wilson Holdings Inc., a Beverly Hills REIT for $48 million. Kennedy Wilson also acquired the Tri Center, a 143,256-square-foot Class A office building at Sepulveda Boulevard and Oxnard Street in Van Nuys as part of a $78.5 million three-property deal with Jamison. Rubin and Lee & Associates colleague Marc Spellman also closed a deal on the purchase of a 9,600 square-foot owner-occupied building in the 5900 block of Variel Street in Woodland Hills. And for all the economic uncertainty, some tenants seized on the low rents and locked in long-term leases before pressures begin to significantly raise lease rates, Albee said. Already, landlords have bumped up asking rents from $2.18 a square foot in the third quarter to $2.28 a square foot in the fourth. Whole Foods Market, the Austin, Texas-based grocery chain, moved its regional headquarters from Sherman Oaks to Glendale, where it will occupy two floors of a Class A building at 207 Goode Ave. And Arlington, Va. aerospace and defense manufacturer Alliant Techsystems Inc. leased 120,000 square feet at 9401 Corbin Ave. in Northridge to consolidate area operations. The lease is for more than 10 years and the value was not disclosed. “We would like to see more of those deals and the velocity of them is down,” Sanchez said.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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