Medical Industry Acquisitions Give Office Market Shot in Arm

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Overbuilt in the years leading up to the housing crisis and recession, the Santa Clarita Valley’s office market has been nearly one-quarter vacant for most of the past several years.

But three big deals in the fourth quarter – all by health care companies – took nearly 140,000 square feet off the market and drove down the region’s vacancy rate to 16.4 percent, better than the Los Angeles County average and the lowest for Santa Clarita since late 2007, according to Jones Lang LaSalle Inc.

Kaiser Permanente, UCLA Health System and a local medical group all purchased vacant office properties. Kaiser’s deal for a 121,000-square-foot property was the biggest of the quarter, valued at about $10 million – $2 million less than the list price. The foreclosed building was last occupied in 2007 by U.S. Borax, a mining company that was acquired by another firm.

Ryan House, a vice president with Jones Lang LaSalle in Santa Clarita, said the spate of big sales shows buyers are getting good deals.

“All these buildings have been 100 percent vacant and have been on the market for many months, and in some cases years,” he said. “Buyers are still getting very favorable terms.”

But the leasing market has been less active, with tenants renewing leases but not taking additional space. Asking rents in Santa Clarita have actually fallen to $2.40, down two cents from the third quarter.

Kevin Fenenbock, a senior vice president with broker Colliers International in Santa Clarita, said asking rents have seemed expensive given the area’s high vacancy rate and that the lower vacancy rate should make asking prices seem more reasonable to prospective tenants and drive more lease activity.

“It’s going to give the market a better perception,” he said. “It’s in line with the rest of the county. I think everything is turning the right way.”

Fenenbock said he expected asking rents to stay flat through 2013, but that landlords would offer fewer concessions such as less free rent and tenant improvement allowances if space continues to fill up.

House, though, said many tenants are actively looking for space in Santa Clarita and that rates could start rising by midyear.

“I think we’re past the worse part,” he said. “The market is poised for improvement. We’re only going to see rates increase over the next six to 24 months.”

– James Rufus Koren

Main Events

  • Kaiser Permanente purchased a 121,000-square-foot office building at 26877 Tourney Road in Valencia. The building, built in 1992, had been the headquarters of mining company U.S. Borax from 1993 until the company moved to Denver in 2007. The property is owned by an entity of insurance company American International Group Inc. Sources valued the sale at about $10 million.

  • A local medical group acquired a 44,000-square-foot office building at 23823 Valencia Blvd. The building had been on the market for about four years. It was the former headquarters of Newhall Land and Farming Co., the company that planned Santa Clarita’s Valencia community.

  • UCLA Health System purchased a 36,000-square-foot building at 27235 Tourney Road in Valencia. The building, finished in 2009, was built for medical offices but has never been occupied. Sale terms were not disclosed.

  • Digital Records Management Inc. of Van Nuys acquired a 77,100-square-foot industrial building at 29145 the Old Road in Valencia. It bought the property for $8.6 million from paintbrush manufacturer and distributor Great American Marketing Inc.

  • Nexus IS, a network integration company, renewed a 30,000-square-foot lease at 27202 Turnberry Lane in Valencia, its corporate headquarters. Terms of the deal were not disclosed.

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