Strong and getting stronger is how brokers described the North Los Angeles commercial office market at the end of the second quarter. With vacancies continuing to fall and rents on the rise, all signs pointed to a market driven by more demand than builders or landlords could supply.
Brokers said it's a trend that's here to stay, even with commercial rents in areas of Valencia and Thousand Oaks now surpassing prime San Fernando Valley markets such as Warner Center and Sherman Oaks.
David Solomon, first vice-president with CB Richard Ellis Group Inc. in Universal City, has been leasing office space in the North L.A. market for more than a decade. He said that barring a major downturn in the overall economy, the region would stay hot throughout 2006.
"The fundamentals are really strong and there's plenty of space, relative to the overall market base, coming online," Solomon noted. "Investor confidence has not waned, given lowered vacancies and rising rents."
John Battle, principal with Lee & Associates in Sherman Oaks, agreed. "The Santa Clarita office market has undergone a renaissance, even with the spiking rents and lowered tenant improvements," Battle said "Developers are still building, and the spec money is still there."
Vacancy rates across North L.A., which includes the San Fernando, Santa Clarita and Antelope valleys and portions of the Conejo Valley, fell to 6.3 percent, down sharply from 7.8 percent in the same period last year, according to Grubb & Ellis. The spike in Class A rents was pronounced, averaging about fifteen cents, or roughly 7 percent, higher than the second quarter in 2005, at $2.41 per square foot.
Firms looking to cash in on a booming home building market again paced leasing. Fieldstone Homes will be the first tenant inside the second of two 77,400-square-foot parcels that Opus West Corp. recently put on the market in Valencia. The residential builder took 12,255 square feet. Terms were five years in the $2.60 per square foot range, full service gross.
Irvine-based SunCal Cos., which has specialized in creating master-planned, mixed-use communities in Riverside and San Bernardino counties, snatched up 10,186 square feet in Opus West. The deal was in the $2.60-per square-foot range for 60 months, full service gross.
The quarter's largest office deal saw the Auto Club of Southern California lease an entire 32,000-square-foot building within Phase III of Valencia's Tourney Place at Tourney Road and Wayne Mills Drive. Total consideration for the deal with Sapra I LLC was in the range of $11 million for 10 years, full service gross.
Of the 577,562 square feet of new office space under construction in North Los Angeles County, the Conejo Valley accounted for 60 percent. The Santa Clarita Valley made up the balance with 230,343 square feet. Both areas remained a magnet for out-of-town developers.
Orange County-based Parker Properties, which purchased, leased and later sold the 177,00 square-foot office park Summit at Valencia, received a conditional use permit to develop a five-story office building near the Golden State (5) Freeway and State Road 126, adjacent to a Courtyard by Marriott which is under construction and a planned Embassy Suites. The 144,000-square-foot project will be called Summit Oaks.
"Summit Oaks, which will target Fortune 500 companies, shows the maturity of the Valencia market," Solomon added. "The region has averaged 200,000 square feet of absorption for the last few years, in a base that's approaching 2.5 million. It's definitely on the radar screens of institutional investors."
North Los Angeles industrial markets such as Lancaster and Palmdale also saw plenty of action. Overall sales and lease activity was up nearly 1 million square feet from the previous quarter, at a robust 2.9 million square feet. Vacancies across North County reached all-time lows, down to 2.1 percent from last year's 3.2 percent in the same period.
"Supply is constrained and it's driving vacancies way down, " said Craig Peters, executive vice president with CB Richard Ellis. "The San Fernando Valley, which has a 160 million square foot base, is nearly all tapped out."
Peters said that 56 percent of his recent industrial transactions were by owner/users. In a new trend, he said, industrial buyers are willing to purchase an empty building with the incumbent lease risk to get a better overall return, given how competitive the leased investment sale market has become.
Examples would be two deals within the Valencia Commerce Center, where Commerce Pointe recently completed construction of eight industrial parcels ranging from 9,400 square feet to 21,000 square feet. Melrose Center Investments purchased a vacant 21,544 square-foot parcel for approximately $3.1 million, while Rediger Investments purchased three empty buildings for roughly $5.2 million. The buildings range in size from 10, 756 square feet to 14,536 square feet.
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