Third quarter net absorption figures in the West Valley gushed into the red: more than 185,000 square feet was put back on the market a direct result of the sub-prime mortgage bloodletting that has swept the nation.
Tenants in the residential home industry title and escrow, appraisers and brokerage were exiting en masse, according to Brian Forster, Executive Vice President with Told Partners in Woodland Hills. "Nearly every mortgage firm in the region is giving back chunks of space," noted Forster. "In some cases, they're just disappearing in the night."
It wasn't just in the West Valley, where Grubb & Ellis Co. reported a sharp spike in vacancy rates to 10.3 percent from 8.3 percent in the second quarter. Office space givebacks, or defaults, in mid-Valley markets including Van Nuys and Sherman Oaks, contributed to a jump in vacancies to 6.8 percent from 5.0 percent in the Central Valley. East Valley vacancies couldn't get any tighter from second quarter's historically low 2.5 percent, but even there, open space still increased in bunches, resulting in a 4.5 percent vacancy rate.
How did landlords view the drubbing? A "temporary hiccup", according to some. And with Class A asking rents continuing to climb, up 44 cents in the East Valley to $3.82 per foot, and up 20 cents in the Central Valley to $2.93 a foot, who can argue? The rate at LNR Warner Center Phase IV, which doesn't come fully online until next spring, was pressing the $3 per-foot mark, 60 cents higher than Warner Center overlord Douglas Emmett was charging for top-end space at the start of the year.
"It's still a landlord-dominated market," Forster said. "Vacancies in the smaller buildings are historically low, so losing one or two 2,500-foot tenants hasn't deterred owners from raising rents. On the high-rise side, everybody feels the money will get flushed back in pretty soon because there's so little new construction. A 5 percent bump (in West Valley rents) in the next few months wouldn't be a surprise."
Valley developers didn't feel the mortgage meltdown would have staying power. After nearly a year on the boards, a $1.3 billion mixed use project at the terminus of the Red Line subway and Orange Line busway on Lankershim Boulevard in North Hollywood, was given the thumbs-up by the MTA. Brentwood-based Lowe Enterprises got the OK to start moving on "NoHo Art Wave," the largest transit-anchored project in L.A. County history. Lowe's plan will bring in almost 2 million square feet of office space, more than 500 apartments, and some 160,000 square feet of retail and entertainment.
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