With office vacancy rates over 20 percent, the Santa Clarita Valley market will take years to fully recover, according to a regional economist. But the market will see gradual improvement this year and next. Mark Schniepp, director of The California Economic Forecast, said that the office vacancy rates are estimated at about 25 percent and a three-year wait may be in store to see a return to its previous state. “It doesn’t mean that the office market is going to be depressed,” he said. “It just means that for it to get back to where it was in 2005 and 2006 when it was tight and vibrant, we may have to wait until around 2014.” Office vacancy rates, however, have declined by approximately 3 percent since the first quarter of 2010 in Santa Clarita. But the current vacancy rates are twice as high as they were three years ago. With only one project currently under construction – a 100,000-square-foot-building at 17901 Soledad Canyon Road – the office market inventory has remained at just under 3.0 million square feet for more than two years. Besides space in the Valencia Commerce Center and properties along the I-5 Corridor, three large areas contributing to those high vacancy rates are at the Soledad Canyon Road location, 116,000 square feet at 26877 Tourney Road and 27,770 square feet on Entertainment Drive. To see a recovery in the office market, significant improvement is needed in the Los Angeles County labor market and the Santa Clarita residential real estate market, said Ryan House, vice president of Jones Lang LaSalle. In Santa Clarita, conventional home sales are expected to be stronger by the summer with affordability at an eight-year low. Plus, the total number of new job creations are set to reach two million nationwide in 2011, in turn, improving sales and new home construction, according to the UCLA Anderson Forecast. Stability should return to the Santa Clarita office market in 2011 strengthening in the latter part of this year and gaining more strength in 2012, said House. “I think it’s going to be a very moderate increase, and it may even be unnoticeable from quarter to quarter,” he said. “But I am optimistic because I think the large blocks of space are done seeing a retraction.” Industrial market However gloomy the office vacancy rates appear, the vacancy rates in industrial buildings have seen a 6.5 percent decrease compared to the peak of 11.1 percent in 2009. Evidence of that 6.5 percent decrease can be seen in recent transactions with buildings over 90,000 square feet. Deluxe Digital Media recently consolidated their operations from a 50,000-square-foot-building and 60,000-square-foot-building into a 229,000-square-foot-building in the Valencia Commerce Center. In addition, the first speculative construction project in the Santa Clarita Valley is underway by Avalon Investment Company, said Nigel Stout, executive vice president of Jones Lang LaSalle. To be completed within a few weeks is Phase 1 of the project which consists of one 10,756-square-foot building and one 14,241-square-foot-building. Phase 2 will consist of an approximately 45,000-square-foot building, both of which will be LEED-Certified. With this being the first speculative construction project in almost three years, Stout said it could be the “canary” for future construction. “Once the economic market starts tightening, it makes economic sense at some point to start building industrial buildings,” said Stout. Other indicators Build-to-suit projects – an agreement where the owner pays for the building construction to specifications of the tenant – would be a clear signal that recovery is beginning, Stout said.. Coming out of the 1996 real estate crisis, two large buildings in the Valencia Commerce Center – ITT and Remo – were build-to-suit developments, he said. “The last big recovery period was in the 90s, and the first activity that you saw was big build-to-suits,” said Stout. “So, you might start seeing some larger build-to-suits.” Also, in this quarter, PDA Group leased 138,980 square feet on Avenue Kearney, AMS leased 117,151 square feet on Commerce Center Drive and leased 111,373 square feet on Witherspoon Parkway. A “cautiously optimistic” attitude will continue as businesses look for the assurance in the economic recovery, said Stout.