RE Column

Recolumn/garcia/24″/dt1st/mike2nd By SHELLY GARCIA Staff Reporter After languishing for six months, the San Fernando Valley office market showed definite signs of life in the second quarter. The overall vacancy rate dropped nearly a full percentage point in the three-month period ended June 30, thanks to a renewed sense that the area’s economy will continue to be strong. Brokers said the second-quarter activity reflects the culmination of deals begun over the past six months, when many corporate tenants looked for space but stopped short of making new lease commitments. The stabilization of the financial markets and recently completed developments that brought much-needed large blocks of space onto the market accounted for much of the action. “The pipeline was full of deals. They just hadn’t closed,” said Tom Festa, vice president at Grubb & Ellis Co. “When the capital markets pick up, people reexamine their business plan and their capital expenditures and growth.” Overall, the Valley office vacancy rate declined to 13 percent in the second quarter, from 13.9 percent in the first quarter of 1999, according to Cushman & Wakefield Inc. Though a single percentage point may seem to reflect only minor activity, it stands in stark contrast to the prior two quarters when the vacancy rate hardly budged at all. Many of the area’s submarkets showed a similar pattern of improvement. Office vacancies in the West Valley dropped to 13.6 percent in the second quarter from 14.3 percent in the prior quarter. The vacancy rate in the Conejo Valley dropped to 12.1 percent from 13 percent in the prior quarter. And in the Central Valley, the vacancy rate dipped to 12.9 percent from 14.3 percent in the first quarter. Only the East Valley remained relatively flat, with a vacancy rate of 12.6 percent compared to 12.5 percent in the prior period. Until now, vacancy rates had fluctuated only a few tenths of a percentage point on a quarterly basis, because of the uncertainty that gripped Wall Street during the middle of last year, and because lease rates in the Valley had risen substantially over the past five years, resulting in sticker shock for those mulling a move. “They probably had their brokers go out and do more surveys,’ said Bill Inglis, first vice president with CB Richard Ellis Inc. “Now in the second quarter, they’re finally saying, ‘It ain’t going to get any better. Let’s make a deal.’ ” Rental rates continued to increase in the second quarter, although brokers report that they have recently seen some flattening in the trend. For the second quarter, the average lease rate in the Valley overall was $1.86 per square foot per month, compared with $1.83 in the first quarter. Here too, the submarkets showed similar trends. Rental rates in the Central Valley averaged $1.81 a square foot in the second quarter, up from $1.79 in the prior quarter. Average rent increased to $1.87 per square foot in the West Valley, from $1.83 in the first quarter. And in the Conejo Valley, the average rent jumped to $1.92, from $1.86 in the earlier period. The East Valley also showed the smallest degree of fluctuation where rents were concerned, rising to $1.86 per square foot in the second quarter from $1.85 in the first. The biggest impediment to leasing activity continues to be the lack of large blocks of available space in the Valley. The market is so tight that some brokers report multiple offers on choice properties. Ron Wade, associate director at Cushman & Wakefield, reports that was the case when Superior National Insurance leased 90,878 square feet of space at Kilroy Plaza in Calabasas. “We are seeing in almost every submarket multiple tenant competition for the same space,” Wade said. “I don’t think that’s happened since 1988.” Many of the companies that accounted for the leasing activity in the second quarter are in the high-tech and insurance industries. They include Sterling Software, which inked a deal for a 135,000-square-foot build-to-suit in the West Hills Corporate Village, currently under development by Regent Properties, and Voluntary Plan Administrators, an insurance company that signed a lease for 40,000 square feet in the Calabasas Park Center, which is under construction by Kilroy Realty. Valley portfolio A number of Valley industrial properties changed hands in a recent $80 million portfolio sale to RREEF Funds, a real estate investment trust. The portfolio contains five properties and 48 buildings totaling 1.3 million square feet, according to Scott Stuckman, vice president of acquisitions for RREEF. “They’re very well-leased,” he said. “They’re in very competitive submarkets.” The portfolio includes properties at 25045 Avenue Tibbits and 27721 Avenue Mentry in Valencia. Another 15 buildings are located at the Burbank Airport Business Park, and nine of the properties are in the Chatsworth Business Park. RREEF acquired the properties on behalf of the California Public Employees Retirement System. W. Jay Borzi and Stephen Silk of Cushman & Wakefield represented the seller, Westbrook Partners LLC. Industrial deal A Valley maintenance company has acquired a 19,300-square foot industrial building in North Hollywood to expand its corporate offices. Professional Building Maintenance Co., which also has a facility in Sun Valley, acquired the building at 8155 Lankershim Blvd. for $1.3 million, according to Bob Hoyer, a broker with Delphi Business Properties who represented the company in the deal. The seller, Don Marks, was represented by Bill Kogel of Told Partners. Professional Building Maintenance, which employs 450 workers, was recently named one of the top 500 Latino-owned businesses by Hispanic Business magazine. Van Nuys neighbors NEC Business Network Solutions inked a deal for 21,000 square feet of office space at 16300 Roscoe Blvd. in Van Nuys. NEC, which sells and services electronic communication systems, will be relocating from its current offices in Culver City. NEC has also leased additional space in the Cypress Pointe Business Park in Orange County. Jeff Woolf and Robert Erickson of Lee & Associates represented NEC. Ron Wade at Cushman & Wakefield represented the landlord, Massachusetts Mutual Life Insurance.