REAL ESTATE QUARTERLY: Submarket’s Class A Pickings Dwindle With No Projects on Way

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-Toy distributor Shooting Star leased a 40,000-square-foot building at the Valencia Commerce Center in a short-term lease for undisclosed terms.

-Zodax, a decorative home furnishings company, leased a 21,808-square-foot building in the Valencia Commerce Center. Terms were not reported.

-Triscenic Production Services, an entertainment production company, purchased a 45,548-square-foot industrial building at the Valencia Industrial Center for $4.6 million from Harry E. Acker. Stanford Industrial acquired a 22,470-square-foot building there; details were unavailable.

-The 66,584-square-foot Class B Valencia Park Executive Center at 25115 Avenue Stanford was sold by AEW Capital Management for $6 million.

-In Canyon Country, officials prepared to break ground on the first phase of Vista Canyon, a transit-oriented development that emphasizes walkability and green space. Phase One of the project will include 56,000 square feet of office/retail space, a single 18,000-square-foot neighborhood retail store pad, 480 apartments and a large parking structure.

What happens where there is nowhere to go?

“The lack of available buildings has reached a critical point, so we are seeing a very competitive environment for companies looking for buildings,” said Craig Peters, executive vice president of CBRE Group Inc. “Often, several companies will be competing for the same building. The combination of high demand and limited supply is pushing lease rates and sales prices to record levels.”

New data from Jones Lang LaSalle Inc. show office vacancy in the Santa Clarita Valley at 13 percent at the end of the second quarter, down from 16 percent a year ago. The tightening prompted landlords to seek higher rates from tenants, and average asking rates rose to $2.67 a square foot from $2.65 in the first quarter and $2.60 a year ago.

Space is particularly sparse in Class A office properties, noted Ryan House, a JLL vice president.

“In Santa Clarita’s Class A market, vacancy is only 7.1 percent; Class B is 20.9 percent. Over the last five years, some folks have moved up from Class B to Class A, but there are no large blocks in Class B buildings. Smaller tenants have a number of options to choose from, but larger tenants have fewer.”

Movement between buildings pushed absorption negative for the quarter, from 13,129 square feet in the opening period to negative 9,109 in the second. Year to date, 15,412 square feet have come back on the market.

“There were no major office transactions to occur in the market, which is not uncharacteristic, and the theme continues with no new construction under way,” House noted. “Several industrial ground-breakings imminent, but for office development there’s nothing on the horizon yet.”

On the industrial side, Peters said he expected increased lease velocity in the second half of the year.

“There are a number of significant transactions currently in progress, including a major corporate headquarters announcement,” he said.

More industrial space is on the way, too. Land development at Gateway V is done and building construction is scheduled for completion by the middle of next year. Grading on IAC Commerce Center, a nine-building, 1.3 million-square-foot industrial development, should be done by year’s end, with Phase One buildings slated for completion in the third quarter of next year.

These industrial projects will offer little relief to office tenants seeking premium space, but those willing to consider a flex situation could opt for large floor plates outside the traditional office areas until Vista Canyon in Canyon Country is complete. Phase One of that planned transit-oriented mixed-use development will feature a retail main street that will include a 56,000-square-foot building designated for retail and/or office use.

Until then, it’s a landlord’s market and investors are taking note.

Valencia Park Executive Center, a 66,584-square-foot Class B building at 25115 Avenue Stanford, was sold by AEW Capital Management for $6 million, or $90 a foot. In addition, two buildings at the Valencia Industrial Center were sold: Triscenic Production Services, which provides transportation, storage and labor to entertainment companies, bought a 45,548-square-foot building and Stanford Industrial acquired a 22,470-square-foot property.

– Margot Carmichael Lester

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