Hunt for Industrial Moves North by Northwest

Colliers International’s first-quarter data suggest the Tri-Cities office market is holding steady as tenants seeking industrial real estate move north and west where more product, land and labor is available. In the Tri-Cities, Glendale saw 26,000 square feet of net absorption while Burbank experienced 81,800 square feet during the quarter. That’s a big turnaround from a year ago, when Glendale tenants vacated 113,000 as Nestlé USA left its longtime headquarters, while Burbank also had a negative absorption of 102,900 square feet. Kevin Fenenbock, office specialist at Colliers’ Encino office, said that activity remains fairly strong in the Valley, from Burbank and North Hollywood through Encino and Sherman Oaks, adding that entertainment production and post-production tenants are driving record rents in Burbank and NoHo offices. “These users are absorbing a lot of space right now,” Fenenbock told the Business Journal. “We’re still seeing significant demand in those markets. Those guys are wanting to stay east of the 405 (freeway) and stay in that pocket of the market. At $3.50 to $4 a square foot, those are pretty high rates. I don’t think it’s ever got higher in those markets.” San Fernando Valley continues to provide quality and value to companies seeking a respite from higher rents in Los Angeles proper, Fenenbock explained. “We’re seeing continued migration from the West L.A. markets,” he said. “They’re coming to NoHo, Sherman Oaks and Encino.” And as they displace other tenants in the process, those companies are forced to look further west to communities such as Warner Center in Woodland Hills, where the last of the class A space exists. Santa Clarita In Santa Clarita Valley, first-quarter figures are looking good. Office vacancy hovered at 13.4 percent, up slightly from 12.7 percent in 2018 while net absorption reached 17,200, a substantial boost nearly doubling 2018’s 8,700. The market currently has 56,000 square feet of office under construction. A Santa Clarita resident, Fenenbock said that “the overall (office) market there is relatively healthy, although net absorption has been flat to negative over the last couple of years. I kind of blame that on it used to be a less expensive market to move to but now those rates have gone up.” He noted that what makes the submarket attractive is that, unlike in Los Angeles, companies do not have to pay a gross receipts tax and parking is generally free. In the industrial sector, vacancy dipped to 2.8 percent in Santa Clarita, as opposed to 2018’s 6.3 percent, with 552,100 square feet of warehouse under construction and 392,100 sold and leased. At 68 cents per square foot, asking rents appeared flat from both the previous quarter and a year ago. “San Fernando Valley proper is devoid of alternative product for users to consider,” industrial specialist John DeGrinis of Newmark Knight Frank’s Warner Center office told the Business Journal. As a result, users are pushing either west or north to the Conejo Valley, Simi Valley and Moorpark, and Valencia, where there is much more land available for development. “They all want to be in Burbank and Sun Valley (but they can’t) so Valencia and Ventura County are some alternatives,” DeGrinis said. “There are very few (facilities) north of 200,000 (square feet) in the Valley. I can only think of one.” However, DeGrinis noted that the average tenant in the Valley has 100,000 square feet in multiple buildings, so relocating is difficult for them. Ventura County frontier Ventura County’s industrial market waned in the quarter, with rental rates dipping amidst a slight rise in the vacancy rate. Vacancy in West Ventura County tightened to 2.2 percent, down from 2.8 percent the prior year. Some major moves informed the statistics, most notably in Camarillo, where Deckers Outdoor Corp. abandoned a 423,106-square-foot distribution facility on 20 acres at 3175 Mission Oaks Blvd. Indeed, DeGrinis said Simi Valley and Moorpark have emerged as coveted industrial territories. “That’s extraordinary,” he added. “(Up to) seven years ago, vacancy climbed upward of 15 percent and now all of that has been absorbed.” But the need for space will spill beyond the Simi and Conejo valleys. In Camarillo, Newmark represents two former Deckers buildings with 310,000 and 425,000 square feet, respectively. Another ripe community is located just north of Camarillo. “Oxnard has a lot of potential,” DeGrinis said. “Labor is a big component to a real estate decision. There is a labor supply in Oxnard that is available, (Oxnard) also has land. Oxnard is poised (to accommodate), while Simi Valley is tapped out in terms of land.”