SAN FERNANDO VALLEY: Valley Heats Up as Companies Come Over the Hill for Lower Rents

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Major events in Los Angeles County commercial and industrial submarkets in the second quarter.

The numbers in the San Fernando Valley tell a good story.

The vacancy rate dropped nearly a full percentage point during the second quarter to 17.6 percent as the market absorbed nearly 270,000 square feet, according to Grubb & Ellis Co.

But Trevor Belden, principal at Lee & Associates in Sherman Oaks, said he doesn’t need statistics to tell him what he already knows: The market is heating up both for sales and leases.

“What we’re seeing in the second quarter is a lot more tenants, and larger tenants, in the market,” Belden said. “I can count up to 10 sizable tenants looking for space just in the East Valley alone.”

Space hunters include entertainment, financial and technology companies.

The reason for this activity?

Rents in desirable markets such as Santa Monica and Hollywood – already close to or exceeding $4 a square foot – have started to rise, making the valley relatively economical. Savings can be in the 30 percent to 50 percent range if parking and other amenities are included in the calculations, Belden said.

Stacy Vierheilig-Fraser, senior managing director at Charles Dunn Co. in Sherman Oaks, said the strongest office market in the Valley submarket is Studio City, precisely because of its quick route over the hill to Hollywood. Adjacent neighborhoods in the East Valley such as North Hollywood and Toluca Lake also are in high demand by entertainment firms.

“I’m doing a lot of short production deals for 18 months or less with reality TV companies and feature films,” she said. “Landlords don’t want to spend money on tenant improvements because these tenants aren’t long.”

Vierheilig-Fraser said demand for office space decreases on the west side of the San Diego (405) Freeway. The area was a hotbed of mortgage and other real estate-related companies during the housing boom, but has yet to make a full recovery. Average asking rents in the Central and West Valley were 37 cents and 30 cents lower, respectively, than in the East Valley, where they stood at $2.63 per square foot.

Belden expects the higher rents on the other side of the mountain will cause the Valley numbers to rise in coming quarters.

“I would sign the longest lease you can because I don’t think rates will remain this low for long,” he said.

MAIN EVENTS

  • Sherman Plaza office complex in Van Nuys sold for $49.5 million. The transaction included two adjacent Class A buildings: a five-story mid-rise at 15400 Sherman Way and a four-story at 15350 Sherman Way. Together, they comprise 274,000 square feet on 6.8 acres. Majestic Investments in Calabasas bought the property from Embarcadero Capital Partners in Belmont. The building was on the market for 11 months.
  • Red Bull Distribution Co. leased 48,000 square feet of office and warehouse space near the Van Nuys Airport. The five-year deal at 7700 Airport Business Park Way is worth about $1.9 million. The Austrian energy drink giant, which has its U.S. headquarters in Santa Monica, also leased space in Victorville during the quarter as part of its plan to expand its regional warehouse facilities.
  • Health Net California leased two buildings with 334,000 square feet at Hines Warner Center in Woodland Hills. The buildings, at 21281 and 21271 Burbank Blvd., each has five floors of Class A space. Financial details were not disclosed.
  • DG FastChannel, a digital ad production company in Irving, Texas, leased 28,000 square feet at 3330 Cahuenga Blvd. West in Studio City. The 10-year lease has a total value of about $9.4 million.
  • A medical office building at 12626 Riverside Drive in Valley Village sold for $6 million. The 29,000-square-foot building was purchased by Valley Village Medical Center.

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