The maturing Santa Clarita Valley office market is going through some inevitable growing pains.


Nearly 400,000 square feet of Class A office product is coming online in the next 12 months in the Valley, including LNR Property Corp.'s LNR Entrada Gateway Center and Parker Properties' Summit Oaks. Both projects broke ground in the second quarter, and the area's long run of dropping vacancies and rising rents may be leveling off at least for the short term.


"The last time this much spec office space was due to hit the market was in the late 1990s," said David Solomon, first vice president with CB Richard Ellis Group Inc. in Universal City. "The main difference was that the office base in Santa Clarita was 40 percent less than it is today, so the impact was negligible."


Indeed, Grubb & Ellis, Co. reported a steep rise in vacancies, to 10.8 percent from 7.6 percent in the second quarter, with rents flat at $2.77 a foot. Net absorption, while robust at 40,202 square feet, was half the amount of the last quarter. Brokers pointed to US Borax's $26 million sale of its headquarters as skewing vacancy rates, given the 120,000 square feet placed back on the market.


Valencia's current building boom triple the market's normal yearly absorption - is driven by what Solomon calls "anticipated vacancies", where well-capitalized developers build according to solid market fundamentals, and not current leasing. "They know rents need to be in the three-dollar range to pencil out, and are willing to wait a year or so until the buildings are fully leased," he said.


MAIN EVENTS

- Aliso Viejo-based developer, Parker Properties, backed by equity partner REEF, broke ground on its 144,000 square foot spec office site, Summit Oaks. The five-story Class A development site, at 28515 Westinghouse Place, sits at the entrance to Newhall Ranch, a master-planned community that will ultimately include 21,000 homes.

- LNR Property Corp. broke ground on LNR Entrada Gateway Center, a 9-acre project at the northwest corner of Magic Mountain Parkway and the Old Road. The pair of four-story, steel-frame Class A office buildings, which total 200,000 square feet, are targeted for a May 2008 completion. Lennar Homes and Newhall Land will occupy a portion of one building.

- US Borax Inc., now based in Colorado, sold its headquarters at 26877 Tourney Road in Valencia for $26 million, or roughly $200 per square foot. The 129,675-square-foot parcel included an office component and lab. The buyer, Brentwood Capital Management, may convert the lab to office space, but no final decision has been announced.

- US Healthworks signed on for 12,081 square feet at Commons at Valencia Gateway, 25124 Springfield Court, recently purchased by MassMutual Financial Group. The three-year deal had a start rate of $2.85 per square foot, full service gross, with 3 percent annual bumps.

Santa Clarita's largest single commercial tenant, Princess Cruises, expanded by roughly 8,000 square feet at Valencia Town Center I. The deal was for 78 months, with Dallas-based Invesco Real Estate set terms at $2.50 per foot, triple net.


Office Market at a Glance

Inventory: 2.3 million square feet
Under Construction: 60,000 square feet
Class A Asking Rents: $2.77

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