High Demand Propels Increased Activity in Sales, Leasing

Staff Reporter

It was another strong quarter in North Los Angeles County, with a tightening office vacancy rate and increased industrial activity.

The Santa Clarita Valley office market posted one of the lowest vacancy rates countywide, at 10.4 percent, down four-tenths of a point from the fourth quarter and five points lower than the first quarter of 2003. Net absorption remained positive at 9,361 square feet, according to Grubb & Ellis Co.

Sales and leasing activity in the industrial market increased by a third compared to the previous three months, to 419,654 square feet from 303,045 square feet. The vacancy rate, at 8.9 percent, was unchanged from the previous quarter.

There was little movement in lease rates, with Class-A office rates holding steady at $1.80 per square foot from the fourth quarter, down 17 cents from like period a year earlier. Average asking rates for industrial space was 52 cents, a decline of 2 cents from the October-December period.

"It's a growing submarket," said David Solomon, vice president at CB Richard Ellis. He noted that the rapid pace of residential development and growing affluent population have created demand for office space. "There are higher paid employees working in the market, big companies with executives and decision-makers, and it builds on itself."

Homebuilders continued to increase their presence in the area, with three residential developers inking deals.

Pulte Homes signed a seven-year lease for 10,965 square feet at the Summit at Valencia, while Beazer Homes expanded its presence at the Summit, adding 2,578 square feet. Beazer's space at the business park now totals roughly 10,000 square feet. KB Home leased an additional 2,600 square feet in the Valencia Park Executive Plaza.

The 66,000-square-foot Westridge Executive Plaza came onto the market in mid February after being delayed from its original fourth quarter opening. Solomon said it is close to 90 percent leased, with 8,000 square feet remaining.

As in previous quarters, the Summit at Valencia saw most of the action. The 180,000-square-foot Summit is now two-thirds leased, with two of the three buildings almost full. Prospective tenants are discussing the remaining space, Solomon said, and he expects most of the third building to be leased by the third quarter.

Among other notable activity in the first quarter, Specialty Laboratories Inc. sold its unfinished Valencia headquarters to Lexington Corp. Properties Trust, a New York-based real estate investment trust, in a deal valued at $47 million. Under the agreement, Specialty will lease the 198,000-square-foot building on Tourney Road from Lexington for 20 years. Specialty is relocating from Santa Monica.

Castlerock Investments LLC purchased the five-building Paragon Business Center from Holualoa Cos. for $21 million. The complex is located at Avenue Stanford and Avenue Scott and is 90 percent occupied.

Brokers expect the office market to continue showing positive net absorption and increasing effective rental rates as concessions and tenant improvements are phased out. A number of new construction projects should meet the growing market's demand, adding more than 400,000 square feet over the next couple of years.

"The market is prepared for new construction," said Jim Lindvall, senior vice president at Grubb & Ellis. "The demand that has been there for the last two years has taken the excess vacancy out of the market."

Although the industrial market saw increased activity for the quarter, the vacancy rate held steady at 8.9 percent compared with the previous three-month period. But it is significantly down from a year ago when it stood at 12.9 percent.

"In the Santa Clarita Valley about half of the demand comes from existing tenants and half from the San Fernando Valley," said Jim Linn, senior vice president at Grubb & Ellis. "One reason for this is availability and the second is the opportunity to move to a state-of-the-art, new facility. Typically the new facilities have greater functionality than in the San Fernando Valley."

Of the deals completed in the first quarter, leasing accounted for 360,390 square feet while sales were at 59,264 square feet, according to Melissa Ertek, research analyst for the Los Angeles region at Grubb & Ellis.

The largest transaction was at Valencia Commerce Center, with Certified International Corp., a logistics and fulfillment company, signing a 206,930-square-foot, 63-month lease.

Original Production, a television production company, signed a two-year lease for 24,000 square feet at the Mann Biomedical Park for set building and filming.

Buildings for sale under 50,000 square feet are in demand, according to Linn, and have seen the largest price increase for the area. The situation should be eased by the end of the year, with one project under construction in the 80,000-square-foot range and two more slated to break ground in the second quarter, adding in excess of 200,000 square feet towards the end of the year.

Linn expects moderate price increases in the leasing market for the year, citing a good balance between supply and demand and an improving economy. For sales, he expects more significant price increases as the market waits for new space.

Major Events:

- Certified International Corp. leased 206,930 square feet at the Valencia Commerce Center.

- Pulte Homes signed a seven-year lease for 10,965 square feet at the Summit at Valencia.

- Beazer Homes expanded its presence at the Summit at Valencia, leasing 2,578 square feet.

- Lundgren Management leased 8,174 square feet for five years in the Summit at Valencia.

- Specialty Laboratories Inc. sold its headquarters to Lexington Corp. Properties Trust for $47 million.

- Castlerock Investments bought the Paragon Business Center from Holualoa Cos. for $21 million.

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