You know the state of the office market in Los Angeles County is iffy when one of the hottest areas is the San Fernando Valley.
But with transactions such as Majestic Investments’ purchase of a 274,000-square-foot office complex and Health Net California’s 334,000-square-foot lease, the Valley was besting several areas on the Westside by midyear.
To be sure, the countywide vacancy rate fell during the second quarter. But with high unemployment and lingering economic concerns, the market has yielded only a few large deals and many submarkets remain in a state of limbo, brokers said.
Indeed, while many professionals believe the market has already hit bottom, the recovery is, at best, very sluggish.
“What I see is sort of a tepid improvement in the office market,” said John Tronson, a principal with Ramsey-Shilling Commercial Real Estate Services Inc. “It’s certainly trending toward getting better, (but) you’re going to see a very slow and gradual increase in momentum in the office market.”
The county vacancy rate dipped to 16.5 percent in the second quarter from 16.9 percent as the market absorbed 396,000 square feet of space, according to data provided by Grubb & Ellis Co. It was the second time in the past three quarters that the vacancy rate fell, but it is roughly flat from a year ago.
Reflecting the mixed bag of news, Class A asking rents fell 3 cents to $2.92.
The weakness extended to the industrial market, which gave back space for the first time in three quarters. The vacancy rate was unchanged in the second quarter at 3.1 percent, but nearly 563,000 square feet of space was dumped back on the market.
In some areas, however, the news was decidedly more positive. Santa Monica’s office vacancy rate plummeted and asking rents surged amid an influx of tech and new-media firms (see article page 19), while the San Fernando and Santa Clarita valleys each saw their vacancy rates dip by more than a half-percentage point.
Hollywood, too, is trending positively, with its vacancy rate falling from 13.9 percent to 13.4 percent, and its asking rent rising nearly a dime to $3.92.
Tronson, who specializes in the Hollywood submarket, noted that the relative strength of the entertainment and new-media industries is keeping Hollywood’s office market bubbling. Two of the area’s largest office buildings – Sunset Media Tower and 6922 Hollywood Blvd. – are in escrow.
“The moons are aligning for Hollywood to become a very, very strong office market,” he said.
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