The North County office market saw marginal absorption and static vacancy rates in the first quarter, but don't blame it on a soft rental market rather, it's because big chunks of space came online in the growing region.
Dominated by the Santa Clarita Valley market, which absorbed only 37,250 square feet of space in the quarter, vacancy rates remained flat at 7.3 percent (though still down from 7.9 percent a year ago).
"Overall tenant activity in Valencia is still robust," said David Solomon, first vice-president with CB Richard Ellis Group Inc. in Universal City. "But the office base in Santa Clarita is shallow, just under 2 million square feet, so a single development can skew the numbers from quarter-to-quarter."
Case in point was Phoenix-based Opus West Corp., which heaped the second of two 77,400-square-foot buildings into the market at the end of 2005. Less than a third of the two parcels are leased, accounting for more than half of the 201,179 square feet of vacant space in the submarket.
Leasing high-rise office space in North L.A. was also more expensive. Class A rents in Santa Clarita spiked to $2.44 from $2.38, while Class B rents surged to $2.07, up 16 cents from the same period last year. The trend will not slow down anytime soon. Brokers said first-quarter deals for high-end product were reaching $2.65 per square foot.
Brokers said some of the demand was coming from San Fernando Valley firms seeking to escape the city of Los Angeles' gross receipts tax. "There are no gross receipts taxes, which can save firms 10-15 cents per foot, and no utility taxes that get passed down to tenants," Solomon observed.
Brokers said another reason North L.A will siphon off renters: There's little land left for construction in the San Fernando Valley. First quarter construction came in at 468,210 square feet, with Santa Clarita accounting for more than half that total with 260,481 square feet.
High-profile projects that broke ground in Valencia included Phase One of the 105,000-square-foot Gateway Plaza, developed by Tierney Road Investments LLC at 25350-60 Magic Mountain Parkway, and Rye Canyon Pointe, a 82,500 square-foot parcel built by one of the area's largest local players, Intertex Cos.
First quarter rental deals in North County were paced by Prudential Real Estate renewing a 5,000-square-foot lease in Valencia Town Center. Terms were for five years at a rate described "in the high $2 per-foot-range, triple net." (Triple net leases require renters to pay taxes, insurance and maintenance.)
Tire distributor American Pacific Industries signed a 10-year lease with Tourney Plaza LLC for 11,205 square feet in Valencia Corporate Center. Consideration was just over $3.6 million.
On the industrial side, activity continued to be driven by owner/user sales. Pricing cut a broad swath $70 to $150 per square-foot with parcels along the Golden State (5) Freeway corridor trading above $125 per square-foot.
Deals included Simi Valley-based PAK Investments GP spending $7.2 million for a cluster of six industrial condominiums at 29045-29095 Avenue Penn, Valencia. Santa Barbara-based seller Valencia Center LLC handed over 55,249 square feet of overall space at a rate of $130 per foot.
One of the highest price-per-square-foot deals was Cal-Valencia I LLC paying just under $149 to Beverly Hills-based investor SBMC Valencia LP for a 52,510-square-foot building in the Valencia Industrial Center, 27655 Avenue Hopkins. Overall value of the deal was $7.8 million, with nearly $5.5 million put down on a 6 percent cap rate.
Randy Kobata, a principal at Lee & Associates, said a migration to Santa Clarita and, to a lesser extent, the Conejo Valley, by San Fernando Valley industrial users was mostly about "mid-size firms eager to find brand new buildings in the 10,000 to 40,000 square-foot range that were not all infill."
Santa Clarita accounted for two-thirds of the 1.2 million square feet of industrial space under construction in North Los Angeles in the first quarter. But brokers said that since the region's largest landholder, the Newhall Land and Farming Co., was sold to Lennar-LNR Property Corp., in 2003, residential home building has taken center-stage.
For the near-term, though, industrial dirt is still being filled up. First quarter groundbreakings in Santa Clarita included PacTen Partners' and ING Clarion's Gateway Pointe. The Valencia Commerce Center project will add 160,000 square feet to the submarket. The Krausz Cos. Inc. started digging for a 217,000 square-foot build-to-suit for Hitachi Power Tools in the Valencia Commerce Center.
With an overall North County vacancy rate of 2.4 percent in the first quarter, industrial leasing was slower than anticipated. Vitamin producer Pharmavite locked up 60,303 square feet in the Valencia Industrial Center. Terms from Akian Trust were set at five years for roughly $2 million. Aerospace parts manufacturer Paragon Precision Inc. signed a seven-year lease at 25620 Rye Canyon Road, Valencia. Local developer Scurria Trust leased out the 24,000-square-foot footprint for a little over $1.6 million in consideration.
"Anything below 15,000 square feet has been moving, and anything above 20,000 square feet has been soft," Kobata pointed out. "There's a lot of owner/users coming into Valencia and they would rather buy than lease."
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