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.)
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