Positive Absorption a Welcome Development in Second Quarter
By MICHAEL THURESSON
Staff Reporter
The San Fernando Valley proved to have the strongest office market in the county in the second quarter, as vacancy rates declined by nearly 2 percent and net absorption jumped by more than 300,000 square feet.
The five Valley submarkets combined boasted a vacancy rate of 12.7 percent, second only to the far smaller Wilshire Center, with only the Santa Clarita Valley office market experiencing an increase in vacancies, according to data collected by Grubb & Ellis Co.
Asking rents for the Valley as a whole held steady, moving only a cent lower than in the previous quarter. But in the east Valley, where the vacancy rate is at 1.1 percent, asking rents moved up sharply, hitting $2.66 per foot, a 13 cent increase from the previous quarter.
Even with the significant tightening, some expect the balance of the year to have even more activity.
“It’s been very quiet for the past year, and we can expect vacancies to continue to decline as new space and subleased space is absorbed,” said Jerry Katell, president of Katell Properties, an L.A. developer with projects in Northridge and Agoura Hills.
Much of the activity in the quarter was centered at Warner Center, the largest office pocket in the West Valley.
Health Net Inc., with 335,000 square feet already under lease at the project, took another 10,000 square feet in a deal with landlord Kearny Real Estate Co.
ING Group, a financial services firm based in The Netherlands, leased a 5,000 square foot space and Coffee Bean & Tea Leaf and the China Inn Caf & #233; each signed Warner Center leases.
Warner Center also saw a fair amount of activity on the investment side.
Lennar Partners, owner of LNR Warner Center, sold three buildings on the property totaling 449,000 square feet to DLJ Real Estate Capital Partners for $111 million, the largest sale in the quarter.
The buildings had been under contract to Bentley Forbes LLC earlier in the year.
Kearny sold a one-story building in Woodland Hills for $3.3 million to Herb Rothman, owner of insurance company CM Myers Co. Inc. CM Myers will relocate from Encino and plans to lease out 5,000 square feet of the 24,000 square foot building.
Building activity
The demand in the market is driving development. There were more than 340,000 square feet under construction in the Valley in the quarter, more than half of the total for the county as a whole.
Among the projects under construction and seeing deal in the second quarter was the Commerce Center at Van Nuys Airport, an eight-building, 355,000-square-foot industrial complex being developed by Nearon Enterprises. The developer, which plans to hold on to two of the buildings for lease and sell the balance, went to escrow on the six for-sale buildings in the second quarter.
“The only way to move product is offer property for sale or for lease as opposed to lease only,” said Mike Tingus, senior vice president at Charles Dunn Co. representing the developer. “Money is cheap, lease rates are not coming down, vacancies are pretty low. Basically you have a bunch people saying ‘I’m going to buy if a better building comes available.'”
The steepest drop in vacancies was seen in the Conejo Valley. Vacancies in the submarket, which bleeds over into Ventura County, fell to 14.1 percent from 18.2 percent in the first quarter and 19.3 percent in the second quarter of 2002. Average asking rents rose slightly to $2.28 per square foot for Class-A space, from $2.27 in the first quarter.
Second quarter vacancies in the Central Valley submarket declined to 9.9 percent from 11.9 percent in the first quarter, as average rents nudged lower to $2.07. In the West Valley, vacancies fell to 14.4 percent from 15.8 percent in the first quarter. Average asking rents on Class-A space dipped slightly to $2.19 from $2.20.
