East Valley Still Outperforms in Office Market

According to brokers working the office and industrial real estate markets, 2018’s fourth quarter conveyed a bright picture, although office vacancy in the San Fernando Valley climbed to 12.7 percent from 11.3 percent the previous quarter, according to data from Colliers International Group Inc. Growth came in specific submarkets. Vacancy is still high in Glendale at 17.2 percent, but it dropped 2 points from the previous quarter. But at 165,500 square feet, net absorption skewed high. In Burbank, vacancy is more or less flat with last quarter and year over year. With a slightly positive net absorption of 42,000 square feet, rents are trending upward to $3.38 per square foot. William Boyd, whose team recently joined Seattle-based Kidder Mathews, said what’s unique about Glendale’s office scene is that “it is still somewhat of a dyfucntional market in that while vacancy is increasing significantly in the past year, rental rates are too from $2.70 per square foot to $3.00 per square foot today. … Historically, in a softer market, rental rate growth is soft or stagnant in the face of increased vacancies. Landlords don’t want to dare the market by raising their rents.” Boyd noted that what usually causes rising vacancy and rates is that institutions buy office buildings “and then raise the rental rates to justify what was spent on the building, regardless of the current marketplace.” Office acquisitions by institutional investors during the quarter include Boston-based Beacon Capital Partners’ $160 million purchase of a 22-story office tower at 800 N. Brand Blvd. in Glendale; and Long Beach-based Harbor Associates’ $28 million acquisition of Glendale Gateway at 700 N. Central Ave., a 136,350-square foot building. Among the Tri-Cities, Burbank has the lowest vacancy rates at 10.7 percent. Boyd’s longtime colleague, Kidder Mathews Executive Vice President Linda Lee, noted that Burbank’s rents only slightly up from last year’s, “a good demonstration of the landlords being mindful of the market and not raising rents (too high).” Burbank has always been the strongest of the three markets, Lee confirmed. Burbank remains “as consistent and healthy as it has historically been,” Boyd said. “Ten percent (vacancy) in our market means enough space for tenants to find space but not too soft to help landlords maintain their rates.” Warehouse sector San Fernando Valley data suggests that industrial lease and vacancy rates increased slightly in the fourth quarter compared to the previous quarter, with nearly 100,000 square feet of industrial construction on the way. Broker Jeff Abraham, who earlier this year moved to Newmark Knight Frank after a long run with Colliers, said industrial inventory remains tight in parts of the San Fernando Valley because “there’s nothing left there to develop at this point.” However, Abraham did identify a few isolated projects, including the incoming 168,000 square feet of warehouse at 510 Park Ave in San Fernando and the redevelopment of Quixote Studios’ 100,000-square-foot property in Pacoima, with a lease signed even before the property’s old manufacturing buildings were scraped to pave way for new ones. Another anomaly that is currently occurring, Abraham said, is in West San Fernando Valley at the West Hills site of the recent Corporate Pointe sale, which Abraham’s Newman Knight Frank colleagues, led by Kevin Shannon, brokered last month. Within the $160 million, 80-acre corporate campus bordering Fallbrook Avenue and Roscoe Boulevard stands a 7-acre sliver zoned for industrial, which Abraham and his team are listing. Also, the two Stag Industrial buildings Newmark is listing, totaling 700,032 square feet at 3001 and 3175 Mission Oaks Blvd. in Camarillo, moved Abraham to see hope in the region. “There’s good stuff happening in Ventura County,” he said, noting corporations capitalizing on historic migration patterns of east to west. “The population base that drives out of Ventura County to work is staggering. Job opportunities are in L.A. County, but that’s changing. With the vacancy rates and lease rates in the Valley, you can go to Camarillo and get a building at a much-lesser cost.” Abraham believes that all the submarkets in the L.A. region are interconnected. “We view Camarillo and Oxnard as an extension of the Valley,” he said. “At the end of the day, in the North L.A. region, the dynamics of supply and demand are still the driving force with supply still low, demand still strong.” In Conejo Valley, the vacancy rate roughly doubles year-to-year over Q4 last year. “There was zero (construction) there, then we built 500,000 square feet at Conejo Spectrum and now it’s leased up 350,000 square feet,” Abraham said. “We leased seven of nine buildings before construction or within construction completion.”