Burdened by aging buildings, perceived high crime rates and a dowdy image, several San Fernando Valley sites are getting left behind in the office real estate boom.
Vacancy rates in Chatsworth, Reseda, Panorama City and North Hollywood have approached or even exceeded 20 percent as more tenants are drawn to newer, more upscale office complexes in Woodland Hills, Calabasas and Burbank.
“What changed is the e-trade business,” said Tim Foutz, a broker with NAI/Capital Commercial. “All of a sudden, you get people who have tremendous sums of money, and rent is such a small part of the equation sometimes. If they can move their building to outlying areas and be closer to home, they’re going to do it.”
When officials at Software Dynamics Inc. decided it was time to move to larger quarters, they took a look around their Chatsworth neighborhood but ultimately chose West Hills Corporate Village mainly because the company wanted a swankier address that would enhance its image.
“Here we have the wow factor, and that was just not available in the Chatsworth area,” said Tim Fisher, director of operations.
While vacancy rates hover at or near single digits in Woodland Hills and Burbank, space in other submarkets goes begging. For the fourth quarter of 1999, those areas posted office vacancy rates ranging from 18.1 percent for North Hollywood to nearly 30 percent in the Chatsworth/Canoga Park submarket, according to Cushman & Wakefield.
Even the industrial activity in those markets lags behind Valencia and Simi Valley. A former Sears distribution facility in Chatsworth, for example, has been on the market since September 1998. “It’s been a very challenging market,” said Margaret Fichter, a Cushman & Wakefield broker who represents the property.
A company that relies on a low-wage employee pool is likely to keep its headquarters in a so-called “B” area, where rents range from 25 cents to 75 cents a square foot lower than other parts of the west or central San Fernando Valley. But those kinds of companies tend to be back-office operations.
“This is not brain surgery,” said Bill Inglis, first vice president at CB Richard Ellis Inc. “When you have a business, and you’re doing well, you want to go where there’s a better environment. It’s safer, prettier space, and you’re making more money, so why not?”
Besides, many senior executives live in these areas and want to locate close to home. “While tenants want to pay reasonable rental rates, they’re not necessarily looking for rock-bottom in areas where they may have a little more trouble attracting employees,” said Jim Lindvall, senior vice president with Grubb & Ellis Co.
Brokers like Lindvall said they hardly work in these “B” submarkets at all. “Unless a client specifically asks me to look into something in Canoga Park or Reseda, I typically don’t frequent the area,” Lindvall said. “You have Warner Center, which dominates the west Valley. You’ve got Sherman Oaks and Encino dominating the central Valley, and you’ve got Universal City and Burbank that dominate the east Valley. Locations in between are definitely secondary. That’s both in quality of product and the environment that the area provides.”
Safety is another issue drawing businesses out of certain neighborhoods, although some wonder whether the difference is more perceived than real. “People would complain about the area around Van Nuys and Victory (boulevards),” said Stan Gerson, vice president with Beitler Commercial Realty Co., about his experience when he first moved to L.A. from San Diego four years ago. “I walked the corners two blocks in every direction. It’s wonderful. So what was everybody afraid of? But that’s what I kept hearing over and over.”
Shortly before Software Dynamics made its move to West Hills there was a carjacking that led to a killing within a mile of its location. “We heard the reports and thought it was one of our employees,” Fisher said. “That doesn’t make you set real comfortable.”
By contrast, he said, employees walk around the company’s West Hills campus enjoying waterfalls and a park. And even when they venture outside the campus, the view is different. “The houses you pass, the streets you’re on, there’s a different cultural thing,” Fisher said.
In West Hills, the company found enough room to locate its 150 employees on a single floor and have the option to expand if growth warrants.
“It’s certainly more attractive for prospective employees to see Boeing Co. and Sterling Software than Fred’s Brake Shop,” said Fisher.
