The San Fernando Valley's office market moved back into high gear during the second quarter, thanks to the availability of new space.
Vacancies fell by nearly an entire percentage point, as the April-June period saw the culmination of deals started over the past six months, when corporate tenants looked for space but sometimes stopped short of making commitments.
"The pipeline was full of deals. They just hadn't closed," said Tom Festa, vice president at Grubb & Ellis. "When the capital markets pick up, people reexamine their business plan, capital expenditures and growth."
Overall, Valley vacancies fell to 13 percent in the second quarter, from 13.9 percent in the first, according to Cushman & Wakefield Inc.
Most of the submarkets showed similar gains. Office vacancies in the West Valley dropped to 13.6 percent in the second quarter from 14.3 percent in the prior quarter. The vacancy rate in the Conejo Valley fell to 12.1 percent from 13 percent. And in the Central Valley, vacancies dipped to 12.9 percent from 14.3 percent.
Only the East Valley remained relatively flat, with a vacancy rate of 12.6 percent compared to 12.5 percent. "We had hoped some of these deals would get executed in the first quarter, but it took a little longer," said Ron Wade, associate director at Cushman & Wakefield.
Some of the slowdown during the prior two quarters was attributed to sticker shock. As vacancies declined throughout much of the Valley, rents began to rise, and companies in the market for new space found rates that were higher than anticipated. Another factor might have been last year's gyrations on Wall Street.
"They probably had their brokers go out and do more surveys," said Bill Inglis, first vice president with CB Richard Ellis Inc. "Now in the second quarter, they're finally saying, 'It ain't going to get any better. Let's make a deal.' "
Rental rates continued to increase in the second quarter, although brokers report they have seen some flattening in the trend. For the second quarter, the average leasing rate throughout the Valley was $1.86 per square foot, compared to $1.83 per square foot in the first quarter.
Similar trends were apparent in the submarkets.
A big impediment continues to be the lack of large blocks of available space. The market is so tight that some brokers reported multiple offers on choice properties. That was the case when Superior National Insurance leased 90,878 square feet at Kilroy Plaza in Calabasas.
"We are seeing in almost every submarket multiple tenant competition for the same space," Wade said. "I don't think that's happened since 1988."
Several new developments helped loosen the market in the West Valley. Regent Properties, developer of West Hills Corporate Village, signed a deal with Sterling Software for a 135,000-square-foot, build-to-suit project, and with Software Dynamics for 30,000 square feet of office space in an existing building on the property.
Insurance company Voluntary Plan Administrators inked a deal with Kilroy Realty for a 40,000-square-foot office facility in the Calabasas Park Center currently under construction.
Other deals in the quarter involved Applied Computer Technology, which relocated to a 49,620-square-foot space in the Malibu Canyon Business Park, and RealSelect, an Internet real estate company that expanded into an additional 15,700 square feet of space in the Lincoln Oaks Corporate Centre in Thousand Oaks.
Among the deals transacted in the Central Valley was a 23,000-square-foot lease to NEC North America, an electronics sales and distribution firm.
On the industrial front, the market is so tight that leasing efforts are severely hampered. "When you get too low a vacancy, it shuts down activity because there's no place to go," said Todd Lorber, vice president with Grubb & Ellis.
The vacancy rate for industrial space increased to 6 percent in the second quarter, from 5.2 percent in the first three months of 1999, according to by Grubb & Ellis.
But the rise was due as much to quirks in accounting as actual availability. Because space is so tight, new tenants are signing leases in buildings that current tenants have not yet vacated. Meanwhile, buildings currently occupied by firms agreeing to new leases are reported as available space, even though the company might be six months or more from an actual move.
Despite the accounting issues, some market factors did contribute to the increase in vacancy rates in the second quarter, particularly in the Central Valley, where vacancies rose to 6.9 percent, from 4.2 percent in the prior quarter.
Much of the product there is older with less square footage. As a result, expanding companies are finding it necessary to leave the area entirely in order to find facilities large enough to suit their needs.
? Regent Properties, developer of West Hills Corporate Village, signed deals with Sterling Software for a 135,000-square-foot, build-to-suit site, and with Software Dynamics for 30,000 square feet of office space in an existing building on the property.
? Voluntary Plan Administrators inked a deal with Kilroy Realty for a 40,000-square-foot office facility in the Calabasas Park Center currently under construction.
? Superior National Insurance leased 90,878 square feet at Kilroy Plaza in Calabasas.
? Applied Computer Technology relocated to a 49,620-square-foot space in Malibu Canyon Business Park.
? RealSelect, an Internet real estate company, expanded into an additional 15,700 square feet of space in the Lincoln Oaks Corporate Centre in Thousand Oaks.
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