Sales drove both the office and industrial sectors in the San Fernando Valley during the first quarter as investors concerned about rising interest rates dived in to make deals.
Brokers reported prices topping $215 per square foot for large office parcels, such as the 160,000-square-foot Academy building on Lankershim Boulevard in North Hollywood that AG/Touchstone Daly LLC sold to the Academy of Television Arts & Sciences for nearly $35 million.
“I have six buildings in escrow for the first quarter of ’05, and three more set to enter escrow,” said Stacy Vierheilig-Fraser, senior managing director with Charles Dunn Co. in Studio City. “I usually average five office sales per year.”
Representatives for large institutional investors, as well as smaller buyers looking for 1031 exchange properties, said an expected 1 percent hike in interest rates in 2005 has driven much of the recent activity. (The exchanges allow investors to avoid taxes by buying a building after selling one.)
In addition, strong leasing activity since the beginning of the year has driven up prices in the sales market. “Developers are running out of land and that also drives up value,” said Nick Gregg, senior vice president with CB Richard Ellis in Sherman Oaks.
The valley’s submarkets did not perform as well. The vacancy rate in the East Valley dropped to 7.8 percent from 9.1 percent in the fourth quarter of 2004, but brokers said leasing there was still not as strong, with only 38,627 square feet of space absorbed in the January-March period, down from 67,732 square feet in the prior quarter.
“The entertainment industry drives the East Valley market. Leasing has been softer there because of the move toward reality TV, which requires less overall support, payroll, and production staff,” said Vierheilig-Fraser. Rents in the submarket averaged $2.57 per square foot for Class-A office space, down 2 cents from the previous quarter and up only 3 cents per square foot from a year ago.
Led by the Sherman Oaks-Encino corridor, absorption in the Central Valley was strong, with 142,275 square feet taken off the market in the first quarter, up from 78,684 square feet the prior three months. The vacancy rate fell to 6.4 percent from 7.8 percent, while Class-A asking rents climbed nearly 10 cents to $2.08 from $1.99.
The West Valley office sector, dominated by the 6.3 million-square-foot Warner Center, showed further signs of being a landlord’s market. Arden Realty Inc., Douglas Emmett and Jameson Properties were raising rents, which reached $2.40 per square foot in some locations.
The San Fernando Valley also was attractive for industrial buyers seeking conversions. Two large properties set to come off the books include a 220,000-square-foot General Motors Corp. site on Van Nuys Boulevard, and a 450,000-square-foot Price-Pfister Inc. facility on Paxton Street in Pacoima. Both properties, part of 25-acre land parcels, are being developed for retail and mixed industrial use.
“The ongoing trend is investors buying and converting industrial sites near commercial and retail corridors,” said Brett Warner of Lee & Associates in Sherman Oaks.
New construction on the industrial side was mostly limited to the East Valley submarket, which is set to add 180,000 square feet of space. Brokers noted that with more than 188 million square feet of industrial space in the San Fernando Valley, absorption impact from the East Valley additions would be minimal.
