Tightening Market May Mean End to Lease Concessions

By NICOLE TAYLOR
Staff Reporter

The office market in North Los Angeles County continued to tighten in the fourth quarter while industrial activity slowed down.

Office vacancy in the Santa Clarita Valley fell by more than a point, to 10.8 percent in the October-December period. Net absorption remained positive at 20,781 square feet, according to Grubb & Ellis Co.

Industrial activity for the Santa Clarita Valley slowed to 303,045 square feet in the period, less than half the square footage moved in the previous three months.

Leasing rates held steady in both areas, with the average asking rate for industrial space shaving off a penny to 54 cents versus the third quarter rate. Class-A office rates were unchanged at $1.80 per square foot compared with the previous quarter.

"Things continue to tighten," said Jim Lindvall, senior vice president at Grubb & Ellis, of the office market. "As far as vacancy, it's right there with the balance of the San Fernando Valley and tied for tightest of the submarkets."

For 2004, Nigel Stout, associate vice president at Grubb & Ellis, expects sales to remain active due to low interest rates, and leasing activity and rental rates to pick up. "I don't think rents are going to go up, but concessions will start to go away because people aren't going to have the option to buy and will start leasing," said Stout.

Although the Santa Clarita office market performed well in 2003, the only significant activity in the fourth quarter came through land deals.

Sapra I LLC closed escrow on a 2.3-acre office site in the Valencia Corporate Center and announced plans to build two 21,380-square-foot office buildings. The project, named Tourney Place, will break ground later this month, with expected completion by August.

There are also two medical office buildings in the works. Pacific Medical Buildings closed escrow on a five-acre site at the intersection of Valencia Boulevard and McBean Parkway and announced plans for an 80,000- square-foot medical office building, with expected completion in early 2005.

Wilshire Realty Group acquired 1.8 acres from Newhall Land and Farming Co. in the Valencia Corporate Center, with plans to build a 35,000-square-foot medical office building. The project will break ground mid-year for delivery in mid-2005.

The 66,000-square-foot Westridge Executive Plaza, slated for a fourth quarter opening, was postponed until the first quarter due to unspecified delays, according to David Solomon, vice president at CB Richard Ellis. Westridge saw some of the only activity during the fourth quarter, with Pardee Homes leasing 15,195 square feet in the building.

With only a small amount of space coming onto the market in 2004, brokers expect vacancy rates to continue their downward trend and rental rates to rise.

"The new space in 2004 just won't provide occupancy in 2004," said Lindvall. "What's there now is what (you're) going to have in 2004 for occupancy."

Mirroring the office market, the industrial market also finished the year strongly despite a slowdown in sales and leasing activity in the fourth quarter. Annual activity was up more than a third, to 1.8 million square feet in sales and leases, compared with 2002.

"It was one of the best years we've had in the Valencia Gateway area," said Craig Peters, executive vice president at CB Richard Ellis. "A lot of major companies located in the area last year and that continues to be a positive step."

The industrial vacancy rate edged up one half of a percentage point during the fourth quarter, to 8.9 percent, from previous period, but was still significantly lower than the year-earlier rate of 13 percent.

Among the sales and leasing deals in the fourth quarter, Bay West Equities purchased a 165,000-square-foot building as a lease investment in the Valencia Commerce Center from Sares-Regis Group and Great Point Investors. The building is being leased by Arvato Services, a division of Bertelsmann.

In Centre Pointe, the Peace Family Trust bought a 31,000-square-foot building as an investment and Sheldon Mechanical purchased 24,000 square feet in order to relocate from Sun Valley.

Spa equipment manufacturer GG Industries purchased two buildings on Avenue Stanford, one at 25,000 square feet and the other at 32,000 square feet.

In the Valencia Industrial Center, Port to Port Imports leased 68,592 square feet.

A couple of land deals also closed in the fourth quarter, which will add space later in 2004.

Viole Construction closed escrow on 3.1 acres in the Valencia Commerce Center, with plans to build a 62,000-square-foot multi-tenant industrial project. The units will be for lease, with completion expected towards the end of the year.

Pacifica Cos. and Pelton Trust acquired 6.8 acres in the Valencia Commerce Center and will be erecting a four-building development totaling 136,000 square feet. The buildings will range from 7,700 to 32,000 square feet and are scheduled for completion by year-end.


Major Events:



- Sapra I LLC closed escrow on a 2.3-acre office site in the Valencia Corporate Center and announced plans to build two 21,380-square-foot office buildings.

- Pacific Medical Buildings closed escrow on a five-acre site at the intersection of Valencia Boulevard and McBean Parkway in the fourth quarter.

- Wilshire Realty Group acquired 1.8 acres in the Valencia Corporate Center, with plans to build a 35,000- square-foot medical office building.

- Pardee Homes leased 15,195 square feet in the Westridge Executive Plaza.

- Port to Port Imports leased 68,592 square feet in the Valencia Industrial Center.

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