Burdened by aging buildings, perceived high crime rates and dowdy images, a number of San Fernando Valley sites are increasingly getting left behind in the office real estate boom. Vacancy rates in areas like Chatsworth, Reseda, Panorama City and North Hollywood are approaching or even exceeding 20 percent as more tenants are drawn to newer, more upscale office complexes in booming places like Woodland Hills, Calabasas and Burbank. “What changed is the e-trade business,” said Tim Foutz, a broker with NAI/Capital Commercial. “All of a sudden, you get people who have tremendous sums of money, and rent is such a small part of the equation sometimes. If they can move their building to outlying areas and be closer to home, they’re going to do it.” When officials at Software Dynamics Inc. decided it was time to move to larger quarters, they took a look around their Chatsworth neighborhood but ultimately chose West Hills Corporate Village. Chatsworth didn’t offer many choices in large office spaces. But for the most part, Software Dynamics decided on West Hills because the company wanted a swanky address that would enhance its image among customers and employees. “Here we have the wow factor, and that was just not available in the Chatsworth area,” said Tim Fisher, director of operations for the software maker. While vacancy rates hover at or near single digits in communities like Woodland Hills and Burbank, space in other submarkets goes begging. For the fourth quarter of 1999, those areas posted office vacancy rates ranging from 18.1 percent for North Hollywood to nearly 30 percent in the Chatsworth/Canoga Park submarket, according to Cushman & Wakefield. Though space is softest in the office sector, even the industrial activity in those markets lags behind newer industrial centers like Valencia and Simi Valley. A former Sears distribution facility in Chatsworth, for example, has been on the market since September 1998. “It’s been a very challenging market,” said Margaret Fichter, a Cushman & Wakefield broker who is representing the property. Fichter said the biggest impediment to leasing the space has been the size of the building, 300,000 square feet, and it’s just a matter of finding the right tenant for so large a space. But the age of the building also affects its desirability. “In the newer buildings, there is less column spacing. There are higher ceilings,” Fichter said. “There’s not a lot you can do about that.” In the office market, the problems are even more pronounced. Many submarkets are in areas far from the freeways, and the supply of skilled labor in the immediate vicinity is sparse compared to parts of the West Valley, Valencia or the Conejo Valley. “It all boils down to location, location, location,” said Duane Cody, associate director at Cushman & Wakefield. Staying closer to home A company that relies on a large employee pool paid at or near minimum wage is likely to keep its headquarters in a so-called “B” area, where rents range from 25 cents to 75 cents a square foot lower than other parts of the west or central San Fernando Valley. But those kinds of companies tend to be back-office operations that do not receive visits from clients or compete fiercely to recruit and retain top employees. The firms that trade off their image are increasingly passing up places like Chatsworth in favor of newer buildings to the south, north and west, where a large pool of skilled labor, including managers, can be found. “This is not brain surgery,” said Bill Inglis, first vice president at CB Richard Ellis Inc. “When you have a business, and you’re doing well, you want to go where there’s a better environment. It’s safer, prettier space, and you’re making more money, so why not?” Many of the founders and senior executives of these e-commerce companies are already living in these areas, and want to locate their offices close to home. At the same time, these upscale communities have attracted a large population of managers and professionals on which businesses can draw. “While tenants want to pay reasonable rental rates, they’re not necessarily looking for rock-bottom in areas where they may have a little more trouble attracting employees,” said Jim Lindvall, senior vice president with Grubb & Ellis Co. With the market showing a greater willingness to bear the freight in these more desirable areas, brokers like Lindvall said they hardly work in these “B” submarkets at all. “Unless a client specifically asks me to look into something in Canoga Park or Reseda, I typically don’t frequent the area,” Lindvall said. “You have Warner Center, which dominates the West Valley. You’ve got Sherman Oaks and Encino dominating the central Valley, and you’ve got Universal City and Burbank that dominate the East Valley. Locations in between are definitely secondary. That’s both in quality of product and the environment that the area provides.” Aesthetic digs Safety is another issue drawing businesses out of certain neighborhoods, although some wonder whether the difference is more perceived than real. “People would complain about the area around Van Nuys and Victory (boulevards),” said Stan Gerson, vice president with Beitler Commercial Realty Co., about his experience when he first moved to L.A. from San Diego about four years ago. “I walked the corners two blocks in every direction. It’s wonderful. So what was everybody afraid of? But that’s what I kept hearing over and over.” Shortly before Software Dynamics made its move to West Hills there was a carjacking that led to a killing within a mile of its location. “We heard the reports and thought it was one of our employees,” Fisher said. “That doesn’t make you set real comfortable.” By contrast, he said, employees can now walk around the company’s West Hills campus enjoying waterfalls and a park. And even when they venture outside the campus, the view is different. “The houses you pass, the streets you’re on, there’s a different cultural thing,” Fisher said. Software Dynamics, which had grown to encompass three separate buildings in Chatsworth, needed a 35,000-square-foot space where it could consolidate operations, and one that would help it make the transition from its former image as a small company to an international corporation, Fisher said. In West Hills, the company found enough room to locate its population of 150 employees on a single floor, have enough space to add such amenities as a game room, and have the option to expand further if its growth warrants. Not only did the West Hills Corporate Village offer facilities that met those needs, it also offered Software Dynamics the chance to be with a cluster of similar companies, a consideration officials say is important both for attracting and retaining employees. “It’s certainly more attractive for prospective employees to see Boeing Co. and Sterling Software than Fred’s Brake Shop,” said Fisher. “We’re a family of software developers, and you get to hang out with your own kind.”
