Vacancy rates continued to fall in the San Fernando Valley office market in the first quarter as the region experienced healthy net absorption, though without any of the large marquee deals that characterized 2013.
The Valley saw nearly 240,000 square feet taken off the market and its overall vacancy rate drop seven-tenths of a point to 14.1 percent, according to data from Jones Lang LaSalle Inc.
“The Valley, particularly the central and east submarkets, (has) tightened significantly in the last six months,” said JLL vice president Ryan House. “Both of them are (around) 11 percent vacancy rate with no new construction occurring.”
The pressure should signal continued improvement in the region this year, said Arty Maharajh, vice president of research at Cassidy Turley.
“The recovery is still continuing,” he said, “but, hopefully, we are in the later innings of a nine-inning game.”
While larger institutional investors drove activity in the market in 2013, a smaller set of companies in the entertainment, medical, educational and insurance sectors drove sales and leasing activity in the first quarter.
“Small businesses have been causing an increase in demand. They’ll be sopping up the vacancies that the larger firms, particularly in the aerospace industry, create as they wind down,” Maharajh said.
The Central Valley submarket continued to experience tight conditions, with a vacancy rate falling slightly to 11 percent, down from 11.1 percent the prior period and 12.5 percent a year earlier. At $2.47, average asking rents are up 20 cents from the year-earlier period. Net absorption of just 6,800 square feet reflected a backlog from potential buyers, said Stacy Vierheilig-Fraser, senior managing director at Charles Dunn Co. Inc.
Most of her entertainment company clients have no trouble finding financing but “nobody wants to sell because they don’t know what to do with their money other than keep it in real estate,” she said.
The East Valley submarket had the strongest first quarter, with nearly 275,000 square feet taken back, slashing the vacancy rate to 11.8 percent from 21.2 percent the prior period. The huge decrease partially reflects the Valley’s largest sale in a decade, which took place in the fall when Comcast purchased 10 Universal City Plaza. The media giant, which owns NBCUniversal, plans to fill the 35-story building with employees and affiliates.
“There is no longer any vacancy there,” House said. “That means there are not a lot of options for tenants in the 20,000-square-foot size and greater. They are looking to Woodland Hills, Chatsworth and Burbank.”
The West Valley was the laggard in the quarter, giving back nearly 50,000 square feet and seeing its vacancy rate increase three-tenths of a point quarter over quarter to 15.5 percent. There is substantial activity in the submarket, however, with some of it driven by a decision at Farmer’s Group Inc. to let its Warner Center leases expire and consolidate employees in Woodland Hills. That leaves companies like Universal Music Group, which had a sublease at 6301 Owensmouth Ave., scrambling for space.
“Universal Music is looking for a lease in the 120,000-square-foot range,” House said. “The market there is poised for some improvement over the next six months.”
Main Events
Macy’s Inc. sold its North Hollywood retail store and regional office headquarters in a $50 million deal with Goldstein Planting Investments of Los Angeles and Merlone Geier Management of San Diego. The deal includes two properties at 6150-6180 Laurel Canyon Blvd., comprising 285,000 square feet of retail and an adjacent 90,000-square-foot office building.
Beverly Hills investment firm Kennedy-Wilson Properties Ltd. purchased Victory Plaza for $30 million. The deal included a grocery-anchored 133,000-square-foot retail center and an adjacent 2.4-acre parcel zoned for multifamily. The property, at 13007-13047 Victory Blvd. in North Hollywood, was bought out of foreclosure from an Irish financial institution.
Infinity Ward, maker of the best-selling “Call of Duty” video games, renewed its lease at 21255 Burbank Blvd. The company occupies 43,754 square feet in the Class A building.
The 236-unit Marquee Apartments in North Hollywood sold in March for $27.5 million. The building, at 12300 Sherman Way, was purchased by MPG Properties Group of San Diego from Marquee Apartments LLC of Phoenix. It was the largest multifamily sale in the East Valley submarket in the last 18 months, according to Colliers International.
