With falling vacancies, all systems were go for a healthy jump in San Fernando Valley rents during the second quarter except it didn’t happen.

Class A asking rates in the West Valley were flat at $2.10, according to Grubb & Ellis Co., while Central Valley rates hit $2.15, up only six cents from the previous three months. Across all of the San Fernando Valley, rates rose only slightly, to $2.19 from $2.17.

So why haven’t rents climbed?

“Landlords have suffered from a lack of demand and modestly high vacancies for so long that they’re reluctant to raise rents,” said Jim Lindvall, senior vice president for Grubb & Ellis.

As usual, demand in the 18.6 million-square-foot office market varied depending on the submarket. The Central Valley saw vacancies drop to 5.1 percent from 6.4 percent.

Deals there were led by Infinity Ward, a unit of Activision Inc., which leased 35,000 square feet at 15821 Ventura Blvd. in Encino. The seven-year renewal and expansion with Douglas Emmett & Co. was valued at $7 million.

The Class A office market along Ventura Boulevard, of which nearly a dozen buildings and more than 125 floors are owned by Douglas Emmett, is among the tightest in the San Fernando Valley. Year-to-date net absorption, the amount of space leased relative to what’s put back on the market, jumped to almost 245,000 square feet in the Central Valley.

In the East Valley, vacancies fell to 7.3 percent from 7.8 percent in the January-March period. Brokers said that leasing at two large properties, including Arden Realty Inc.’s 178,317-square-foot, three-story office building at 5161 Lankershim Blvd. in North Hollywood has made a big difference.

“Space is getting so tight,” said Trevor Belden, principal with Lee & Associates in Sherman Oaks. “A property like 5805 Sepulveda Blvd. in Van Nuys, where lease deals were at $1.85 per foot last year, is now well over $2. That’s a market where you need to get in your car and drive for any amenities. It’s well outside the prime Encino-Sherman Oaks corridor on Ventura Boulevard.”

Richard Bright, vice president with CB Richard Ellis Group Inc. in Sherman Oaks, paints a similar picture. He noted that asking rates at the Harmon International Business Center (8550 and 8510 Balboa Blvd. in Northridge) have jumped more than 20 cents in the last six months.

So where and when will the tipping point come for Valley rent hikes? Brokers suspect it will be at Warner Center, where Douglas Emmett controls more than 2.5 million square feet of Class A office space. Most agreed that a 10 percent rate hike by the end of the year was realistic, relative to the costs of new construction.

“Developers have to recoup $2.75 full service gross per square foot to justify any new construction,” said Lindvall.

Meanwhile, vacancies in the West Valley actually rose to 10.7 percent from 12.4 percent, while absorption went negative and 138,135 square feet was put back on the market.

But brokers noted those numbers were heavily skewed by WMC Mortgage Corp. vacating almost 138,000 square feet of space in Warner Center’s Trillium office building for a relocation to Burbank. Second-quarter lease deals in the West Valley were led by COHR/Master Plan signing on for more than 22,000 square feet of Class B office space at 21540 Plummer St. in Chatsworth. Terms with landlord Pacific Equities were for $1.05 per square foot triple net for five years. (Triple net requires the tenant to pay for taxes, insurance and other expenses.)

Meanwhile, the sales market continued to sizzle, though brokers reported fewer properties were available.

“Sales have been brisk the last six months,” said Belden. “But they slowed this last quarter, particularly in the Central Valley. Inventory along Ventura Boulevard is thin, and the majority landlords, Douglas Emmett, Arden Realty, and Jamison Properties, are not to going to sell their trophy properties.”

Sales in the second quarter were led by Warner Center, where LNR Property Corp. sold its Phase III property, at 5700 Canoga Ave. and 21301 Burbank Blvd. in Woodland Hills, to RREEF, the real estate investment management group of Deutsche Asset Management, for $103 million, or $2.87 per square foot. The two five-story Class A buildings total 358,584 square feet of office space. When all phases are complete, the LNR/Warner Center project will top out at 13 million square feet.

In the Central Valley submarket, Sherman Plaza, at 15350-15400 Sherman Way, sold to ECI Sherman Plaza LLC by seller, Sherman Way/Sepulveda LP, which was led by the office complex’s original builder, Jack Nagel.

Major Events:



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Infinity Ward, a unit of Activision Inc., leased 35,000 square feet at 15821 Ventura Blvd. in Encino.


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COHR/Master Plan leased more than 22,000 square feet of Class B office space at 21540 Plummer St. in Chatsworth. Terms with landlord Pacific Equities were $1.05 per square foot triple net for 5 years.


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LNR Property Corp. sold its Phase III property, at 5700 Canoga Ave. and 21301 Burbank Blvd. in Woodland Hills, to RREEF for $103 million, or $2.87 per square foot.


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Sherman Plaza was sold to ECI Sherman Plaza LLC. The seller was Sherman Way/Sepulveda LP, led by the office complex’s original builder, Jack Nagel.