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By SHELLY GARCIA

Staff Reporter

Office vacancy rates in the San Fernando Valley, especially the super-hot West Valley, continued to plummet in the third quarter of 1998, driven down by a flurry of deals in Warner Center and the Woodland Hills area.

Warner Center's Plaza III was very active in the July-September period. New deals brought the occupancy rate at the tower to 90 percent compared to just 20 percent a year ago.

As a result, office vacancies in the West Valley dropped to 9.2 percent in the third quarter, compared with 15.8 percent in the like period a year ago, according to Grubb & Ellis Co. In the Central Valley, vacancies dropped to 10.3 percent from 13.7 percent a year ago. The East Valley remained relatively flat at 8.5 percent compared with 8.6 percent for the third quarter last year.

The three areas combined posted a vacancy rate of 9.5 percent.

Why was the West Valley so hot? "(It) had the only large, contiguous space available in the San Fernando Valley," said Tom Festa, a vice president with Grubb & Ellis. "There is very little class-A space available."

The Plaza III tower added a lease for 101,000 square feet from Foundation Health Systems and 24,306 square feet from SunAmerica Inc.

At the same time, Health Net, Foundation's operating company, added about 40,000 square feet of space to its facilities at Warner Center's Plaza I, bringing occupancy at the tower to nearly 100 percent.

After considering a move to West Hills Corporate Village, CareAmerica decided to remain at the Trillium. The company downsized its space, freeing up about 60,000 square feet in the Trillium II tower.

But that shortfall did not adversely affect lease rates. In the Trillium, rates rose to $2.50 per square foot from last quarter's high of $2.05. In other parts of Warner Center, class-A space rose to $2.26 per square foot, from $2.13 a year ago.

The trend is likely to continue, brokers said, despite several new developments planned for the area.

Lennar Partners, which acquired the Prudential Insurance Co. of America campus in Warner Center during the third quarter, has begun work to expand the development by as much as 1.5 million square feet. Also in the third quarter, Tishman International Cos. broke ground on a 273,000-square-foot office tower for 20th Century Industries. A portion of that building also will be available for lease. The new space will begin coming onto the market in 2000.

But the bulk of the new development is likely to occur west of Woodland Hills, said Festa.

"The next most logical place is Conejo and Santa Clarita," he said. "The tech center, with Internet companies and networking companies, is growing very rapidly, and they want to be farther west."

Elsewhere in Woodland Hills, Unova Inc. purchased a 90,000-square-foot building and leased a 32,248-square-foot space in it. Holualoa Coast Office LLC purchased the Wood Court, a 53,912-square-foot office building.

Westlake Village also saw heavy leasing activity during the quarter, thanks in part to Pinkerton's Inc., which leased 66,868 square feet of space in the corporate park at Westlake Spectrum.

With the Pinkerton's move, and another 117,000 square feet of leases signed in the quarter, vacancies in Westlake Village declined to 7.4 percent versus 9.6 percent in the third quarter of 1997.

As a result, rental rates rose in Westlake Village to $1.85 per square foot, from $1.64 for the like period a year ago. Class-A space in Westlake Village was renting for $2.05 in the third quarter.

Meanwhile, the San Fernando Valley hit a milestone in the industrial sector for the third quarter, as vacancy rates continued to decline despite the completion of a number of new buildings.

"L.A. North has the tightest industrial market in the Southland," said Mike Clark, a broker with Cushman & Wakefield Inc.

Vacancy rates for industrial properties stood at 4.1 percent for the quarter, compared with 5.1 percent in the third quarter of 1997, despite the addition of about 1 million new square feet of space, according to Cushman & Wakefield.

Leasing activity was up 30 percent from the same period a year ago.

Industrial vacancies are expected to continue their current pace into the fourth quarter, even as more space comes on line from the Lewis Industrial Park in Van Nuys, Cascades Business Park in Sylmar and "The Plant" in Panorama City.

"There is a lot of activity on newer facilities," said Clark. "We found that there's definitely a demand in the Valley for state-of-the-art product."

With interest rates declining, Clark said the number of potential buyers of industrial space has increased, but the volatility of the financial markets and the lack of available properties so far is keeping prices in tow.

In the third quarter, rentals continued to rise for the seventh consecutive quarter to $1.78 per square foot.

"We anticipate that if the market continues to tighten, we'll see lease rates go up," said Clark.

Major Events

San Fernando Valley

? Foundation Health Systems leased 101,000 square feet in Warner Center III.

? Xylan Corp. leased 128,700 square feet in Calabasas.

? Health Net leased 40,000 additional square feet in Warner Center's Plaza I.

? Pinkerton's Inc. leased 66,868 square feet in the Corporate Park at Westlake Spectrum in Westlake Village.

? Lennar Partners purchased the Prudential Insurance buildings in Woodland Hills.

? Unova Inc. purchased 21900 Burbank Blvd. in Woodland Hills.

? Lowe Enterprises acquired a 315,000-square-foot building in Chatsworth.

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