Market Continues to Tighten As Tenants Leave Sidelines

Staff Reporter

The North County commercial real estate market showed signs of improvement last quarter, buoyed by strong demand for small-sized properties and new buyers entering the market as the economy started to rebound.

In fact, analysts said pent-up demand from companies wary of expanding or relocating during the recession could spark a flurry of activity later this year, reversing the upward trend of vacancy rates for industrial property while further diminishing the amount of available office space.

"You're seeing a lot of companies with a need to expand who sat tight and waited for signs of a recovery," said Craig Peters, senior vice president of CB Richard Ellis. "By the end of this calendar year, we're going to see the market in strong shape."

The 1.6 million square foot office market is already picking up. In the first quarter of 2002, vacancy rates in the Santa Clarita Valley edged lower, to 16.5 percent from 17.5 percent in the previous quarter and far better than the 28.3 percent in the period a year earlier, according to Grubb & Ellis Co.

At the same time, the average asking rent for Class-A space was $1.94 per square foot, compared with the fourth quarter average of $1.93 and the year-ago rate of $1.95.

But rents are expected to jump over the next year, analysts said, as demand for office facilities starts to outstrip the inventory of 275,000 available square feet in the market. While absorption in the first quarter took 16,000 square feet off the market about half that taken off in the previous period it was nevertheless one of the county's gainers.

Expecting increases

With no new office facilities under construction, rents could jump soon.

"It's a really involved market where more and more tenants are saying we need to be up there," said David Solomon, a CB Richard Ellis senior associate. "The development opportunity is really now."

Solomon said about 75 percent of the available office space was in the three-building, 180,000-square-foot Valencia Corporate Point complex at 27200 Turnberry Lane. Met Life owns the two-year-old property.

The bulk of last quarter's activity in the office market involved smaller deals. Among them, Cornerstone Systems Inc. signed a six-year lease for 10,000 square feet in the Tourney Point building at 27200 Tourney Road valued at $1.4 million.

Lockheed Federal Credit Union signed a 10-year lease for 4,400 square feet valued at $1.3 million at Valencia Town Center at 24200 Magic Mountain Parkway.

Meanwhile, the industrial submarket saw several major deals even as vacancy rates crept higher. The vacancy rate in the first quarter for industrial space stood at 7.5 percent, compared with 7.3 percent in the previous three months and 4.1 percent in the year-earlier period. Asking rents inched down to 58 cents from 59 cents in the first quarter.

Jim Linn, a senior vice president at Grubb & Ellis, said vacancies were beginning to taper off and would likely fall in the coming months.

"I would be hesitant to say from here on out it's going to be all positive," said Linn. "But it looks as though things are picking up."

Investment opportunity

Among the positive signs are several major deals closed last quarter.

Mann Biomedical Park LLC, led by biotechnology mogul Alfred Mann, bought 420,000 square feet of industrial, office and research and development space in 21 buildings on 167 acres at the Rye Canyon Business Center's north campus on Rye Canyon Loop. The purchase price was not disclosed. The complex will house Advance Bionics Corp., among other companies owned by Mann. W9/North Reality LLC, a partnership of Goldman Sachs and Legacy Partners, was the seller.

Linn said larges spaces of 100,000 square feet were attracting more attention, but smaller transactions are what drove the deals last quarter.

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