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Friday, Mar 29, 2024

Brokers Get Busy Even as Core Valley Market Gives Up Space

The San Fernando Valley office market was a mixed-bag in the first quarter, as activity picked up but the market gave back space for the first time since 2011. The case of New York insurance firm American International Group Inc. is a good example. In March, the company renewed its 138,000-square-foot lease at 21650 Oxnard St. in Warner Center – the largest office lease of the quarter for the submarket – but as part of the deal gave back 44,000 square feet it had previously occupied. “We’re still seeing some adjustment,” said Jeff Albee, senior vice president at Colliers International’s Encino office. “There are companies who have leases that were done five to 10 years ago, and they still need to right-size those leases as they can.” And with such tenuous demand in the market, landlords kept rents flat at an average of $2.21 a square foot across the Valley as the vacancy rate rose two-tenths of a percentage point to 16.9 percent, according to data from Colliers. In fact landlords in the West Valley, where the market remains softer than the Central and East valleys – which are crossed by multiple freeways – are quick to cut rents and offer steep discounts if it means getting tenants. “The Central Valley has really tightened up and gotten more healthy, but in the West Valley, landlords are aggressively making concessions and the flexibility we’re seeing is night and day between the two areas,” said Kevin Fenenbock, senior vice president at Colliers’ Encino office. Institutional investors made big moves in the Valley during the quarter. In February, Brookfield Office Properties Inc. of New York and Toronto acquired the 10-building office park known as Corporate Pointe at West Hills for $91.3 million. In March, Thrifty Oil Co. purchased the 250,000-square-foot Warner Center Gateway for $42.5 million. And in January, Sherman Oaks developer IMT Capital Inc. bought the iconic Sunkist Building in Sherman Oaks for an undisclosed price, with long-term plans to build-out the 8.3-acre campus with mixed-use buildings. The industrial market had its own dynamics. With 233,900 square feet of industrial space taken off the market in the West Valley by a number of smaller leases, the overall Valley market absorbed 148,700 square feet despite losses elsewhere. The gains led to two-tenths of a point drop in vacancy rates, to 3.7 percent, one of the lowest rates countywide, according to Colliers. In the centrally located East Valley industrial rents rose two cents to 74 cents a square foot, while the West Valley rose three cents to 58 cents. “It’s always really about location,” said John DeGrinis, senior executive vice president at Colliers’ Encino office. “With industrial properties, most of our activity is related to distribution, so being close to arterials is important. (But) the disadvantage (of the East Valley) is that the buildings are aging.” That disparity also means that companies looking to consolidate or expand have options in the West Valley. In February, Panavision Federal Systems Inc., the division of movie-camera manufacturer Panavision Inc. that makes equipment and software for the government, took a 22,775-square-foot lease at 9340 DeSoto Ave. It planned to consolidate several smaller area locations at the new space. And with just one small 10,300-square-foot project under construction in the entire valley, the market has no place to go but up, said DeGrinis. “The fact that there has been little new construction – and that there’s really no place for new construction in this infill market – helps the area recover quicker than a place like Santa Clarita, where there can still be more space added into the market,” he said. – Kelly Goff Main Events Insurance giant American International Group Inc. renewed it lease at 21650 Oxnard St. in Warner Center for five years. The lease with landlord Douglas Emmett Inc. is for 138,000 square feet, a reduction of 44,000 square feet. Financial terms were not disclosed. Corporate Pointe at West Hills, a 10-building office park in the West Valley, was sold by Washington D.C. real estate equity firm Multi-Employer Property Trust to New York firm Brookfield Office Properties Inc. for $91.3 million. Regal Medical Group Inc. signed a 12-year renewal and expansion lease at Northridge Business Center at 8550 Balboa Blvd. The doctors’ group is combining two offices already located in the office park into one 96,000 square foot location. Financial terms were not disclosed, but rent in the building averages $2.05 a square foot, according to CoStar Group Inc. Rancho Santa Fe real estate investment firm Thrifty Oil Co. completed its $40 million acquisition of 250,000-square-foot office complex Warner Center Gateway in March. The two buildings were 70 percent occupied, and Thrifty plans on doing some upgrade work to the building. Tenants include the Los Angeles Daily News and liquidation firm Great American Group Inc.

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