Vacancy rates across the San Fernando Valley dropped to 13.7 percent in the second quarter, declining significantly from a year earlier, when the region was seeing vacancies north of 15 percent. Reasonably strong tenant demand continued throughout the quarter, with 170,400 square feet absorbed, according to Jones Lang LaSalle Inc.
After several sluggish quarters, more than 400,000 square feet has come off the Valley office submarket in the first half of the year, according to JLL. The submarket’s strongest area continued to be the central Valley, where the quarter saw 50,637 square feet of positive net absorption. At 10.5 percent vacancy, the area is the tightest in Los Angeles County outside of Beverly Hills and Santa Monica. The East Valley, with vacancy at 11.1 percent – down seven-tenths of a point from the first quarter – is not far behind.
Compared with the pricey Westside, Valley real estate remains a bargain, with average monthly asking rates holding steady at $2.37 a foot, up 14 cents from one year ago. That compares with Westside rents that pushed above $4 a square foot on average in the second quarter.
The price disparity, along with ample parking and other tenant amenities, is driving demand over the hill, said Kevin Fenenbock, senior vice president at Colliers International.
Fenenbock is leasing the Ranch, a creative office project on 11.5 acres at 14801-14823 Califa St. in Van Nuys. The former home of shampoo maker Redken in the 1960s and ’70s, its third-generation family owners decided to revamp a pair of 18,500-square-foot buildings on the site a year ago, taking out dropped ceilings, polishing concrete floors and sandblasting red brick walls, he said.
“They took something of a gamble but now we’re seeing it paying off,” he said, noting that negotiations are under way for a 13,000-square-foot lease on one building and multiple tenants are vying to lease the entire second property. “We’re seeing an incredible amount of activity, mainly from companies getting priced out of the Westside.”
The West Valley, traditionally the weakest section of the region, reversed course from the first quarter and absorbed more than 19,000 square feet. The vacancy rate dropped one-tenth of a point to 15.4 percent.
“The West Valley, including Warner Center, is starting to see some positive absorption,” said Jeffrey A. Gould, vice president at Colliers. “There are some service-sector tenants coming from the central Valley for lower rent.”
The largest relocation lease in the region went to Universal Music Group, whose sublease with Farmers Insurance Group expired when that company decided to consolidate operations in Warner Center. In June, Universal took 146,636 square feet at the LNR Warner Center, 21301 Burbank Blvd., in Woodland Hills. The company plans to move in after the first of the year.
Also this quarter, construction began on Westfield Group’s 550,000-square-foot mall, the Village at Westfield Topanga. The $350 million project is scheduled for completion in late 2015.
– Karen E. Klein
