Dealmaking at a Crawl as Businesses Stay on Sidelines

North County

Staff Reporter

A dearth of properties for sale and a reluctance on the part of businesses to enter long-term lease commitments kept commercial dealmaking at a minimum in northern Los Angeles County.

Slight gains in the industrial market were offset by a flat quarter in the North County office market, which includes the Santa Clarita and Antelope valleys.

"It's similar to what you see in the residential market there's a demand on the purchase side and not much inventory for sale. There's a real trepidation on the leasing side because companies don't want to take on any debt right now," said Todd Lorber, a vice president with Grubb & Ellis Co. "Interest rates are so low that it makes purchasing a better option. People are more willing to take a risk if it's on a long-term investment."

Although some brokers anticipate improved activity in the second half of the year, similarly upbeat forecasts for strong growth in the second quarter did not pan out.

For example, a cumulative 10,000 feet of office space opened up in the 1.6 million square foot Santa Clarita office market in the second quarter. The vacancy rate rose to 17.1 percent, from 16.5 percent in the first quarter, but well under the 29 percent level for the year-ago quarter.

Year-to-date net absorption in the Santa Clarita area stands at just over 6,000 square feet, with some brokers saying that many businesses are staying on the sidelines in the hope that asking prices will dip by the end of the year.

Meanwhile, average rents for Class-A office space dipped to $1.88 per square foot in the second quarter, down from $1.94 in the first quarter. Average Class B rents, on the other hand, saw a jump to $2.10 per square foot, up from $1.99 in the first quarter and $1.88 a year ago.

"The second quarter had minimal change, but I think the office market is picking up if you consider that 18 months ago there was a vacancy rate of 34 percent," said Craig Peters, executive vice president at CB Richard Ellis. "There's very limited construction right now. I think you're going to see some significant improvement."

The industrial market showed more activity in the second quarter than did the office sector.

Average rents rose slightly, to 59 cents per square foot from 58 cents in the first quarter.

Overall, nearly 2 million square feet of lease activity pushed down the vacancy rate to 7.1 percent from 7.5 percent in the first quarter. But the rate was nearly two percent higher than for the second quarter of last year.

"No one is really developing on a large scale, which is one reason while the leasing market will recover," Lorber said. "If the stock market comes back and interest rates go up leasing will pick up."

Action in Valencia

Much of the second-quarter activity took place in Newhall Land & Farming Co.'s Valencia Gateway office and industrial center.

Among the Gateway deals: Vista Controls, a maker of military computing systems, signed a seven-year lease for 51,000 square feet at the Interex Commerce Center. Also, Branam Enterprises, a theatrical rigging company, bought a 76,500 square-foot building in the center and Contractors Wardrobe, a construction industry supplier, purchased a 80,000 square-foot building in the center's South Campus.

In addition, developers Sheldon Appel and Jerrold Felsenthal completed construction on eight buildings ranging in size from 15,900 square feet to 135,000 square feet in the Gateway's Commerce Center Business Park.

Also, tanning products manufacturer St. Tropez purchased a 12,200 square-foot building in Commerce Pointe and U.S. Horizon, a maker of hardware for shower doors signed a five-year lease on almost 31,000 square feet in Gateway III.

According to Newhall Land, vacancy rates have dropped to 12.5 percent in the Valencia Gateway from 28 percent two years ago. In addition, brisk land sales have reduced the supply of available properties.

"As a result of the current situation, Newhall Land is expediting the planning and land development of over 40 acres of office land, all of which will be available over the next 12 months," James E. Brown, the company's vice president for commercial and industrial properties said in a statement.

"It's mostly been a lot of smaller transactions, said Marlee Lauffer, spokeswoman for Newhall Land. "The economy is sending out a lot of conflicting messages but in general the business sector (in Santa Clarita) continues to be really strong."

In other news, the controversial Newhall Ranch project suffered a setback last month. The project, which calls for a planned community of up to 70,000 people in the hills north of the Golden State Freeway, was further delayed when the state Supreme Court declined to review a lower court ruling requiring the developer to redo an environmental impact report concerning water supplies.

North County

Major Events:

- Beverly Hills-based Black Equities purchased a 52,500 square-foot building in the Valencia Industrial Center from pension fund investor RREEF. Deal was estimated at $4 million.

- Branam Enterprises, a theatrical rigging company that had been in Chatsworth, purchased a 76,500 square foot building in Valencia Gateway business park. Terms of the deal were not disclosed.

- The Patronis Group and Fairfield Residential announced plans to build a $38 million, 230-unit rental complex in Valencia that will include 12 residential buildings and a clubhouse.

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