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Monday, Apr 22, 2024

Office Market Flourishes in the East Valley

San Fernando Valley’s office market last year was about on par with 2016’s as the market closed the fourth quarter with 12 percent vacancy, down slightly from 12.5 percent the previous year, according to data from Colliers International. But a closer look at the numbers show the East San Fernando Valley has the lowest vacancy at 8.7 percent. Burbank and Glendale in particular have the highest office lease rates in the Valley, at $3.44 and $2.76 per square foot, respectively. Stacy Vierheilig-Fraser, senior managing director at Charles Dunn Co. in Sherman Oaks, said Valley gains in the office market have come from show business tenants. “You’ve got the entertainment industry and it’s closer to Hollywood and downtown so there’s more demand,” Vierheilig-Fraser said. “The entertainment factor is huge. I’ve shown space to Amazon and Netflix and people who are YouTube sensations.” Vierheilig-Fraser noted that a lot of the tenants are streaming content producers. As a result, they take short-term leases and only stay as long as the shows are in production. “The entertainment industry continued to support the higher rental rates,” agreed Bill Boyd, senior managing director at Charles Dunn Co.’s Glendale office. “That’s been consistent now in the last few years.” CBRE Senior Research Analyst David Nusbaum observed that the Tri-Cities market, which includes Burbank, Glendale and Pasadena, had a record year and was the most active submarket in greater Los Angeles. “This was the first time in at least a decade that a market besides the Westside led the market in sales transactions,” Nusbaum said. According to Colliers, the Tri-Cities finished the year with 13.2 percent vacancy, with Glendale at 13.7 percent and Burbank at 10.9 percent. Such deals as a CBRE Global Investors Ltd. fund’s acquisition of a three-property portfolio from Blackstone Group – which included 801 N. Brand Blvd. and 700 N. Central Ave. in Glendale – for $122 million in December, according to Costar Group, exemplify how desirable the submarket is right now. Both Boyd and Nusbaum noted that Glendale is the Tri-Cities’ value option because a lot of buildings have changed hands in recent years. “The new landlords have been spending to enhance the amenities of the buildings,” said Nusbaum. Boyd said that historically, companies tend to gravitate to Glendale when Burbank space becomes too expensive. Glendale’s lower rents have proved an irresistible lure to such Pasadena-based entities as law firm Christie Parker & Hale LLP, now Lewis Roca Rothgerber Christie – which arrived in Glendale a half-decade ago; and label manufacturer Avery Dennison Corp., which relocated two years ago. To the west, the Conejo Valley market reported a 16.2 percent vacancy rate in the further quarter, down from 17.3 percent a year earlier. “The Conejo seems divided into two distinct markets: Westlake Village and Calabasas, where the bulk of the Class A offices are located, are seeing good activity and landlords are raising rates,” said Jared Smits, principal at Lee & Associates-L.A. North/Ventura. “Agoura Hills and Thousand Oaks, where much of the office product is B- and C, is having a harder time and landlords are lowering rates.” Smits said small office users, who comprise the majority of Conejo Valley tenants, are not leasing enough space to make up for corporate downsizing. “On the flip side, the Conejo Valley is seeing investor interest from companies outside the local area, which is new for a region that formerly only attracted local investors,” he said. Industrial shortage According to Colliers’ data, the San Fernando Valley’s 90 million-square-foot industrial market ended 2017 with a 1.7 percent vacancy rate. “Industrial is super tight, you just didn’t see much of it. And when it comes to market, you see multiple offers to lease and purchase it,” said Charles Dunn’s Vierheilig-Fraser. She added that many of the prospective tenants are marijuana growers looking for space. Simply put, the SFV market has been a landlord-slanted market since 2013, said CBRE Senior Research Analyst Research Jamil Harkness. “Market activity has been strong but a lack of available supply over the past 24 months has suppressed absorption gains,” Harkness said. “Rents have increased 33 percent over the last three years and are still trending upward.” Vacancies in Conejo’s 7,430,000 square feet of industrial surged from 0.3 percent in 2016’s fourth quarter to 1.1 percent in 2017’s while weighted asking rent declined to 89 cents from 2016’s 98 cents. Mike Tingus, president of Lee & Associates-LA North/Ventura, attributes the slight bump in Conejo’s industrial sector – which spans entertainment-related users to telecom – to Conejo Vista Business Center in Thousand Oaks coming online in the fourth quarter with 72,000 new square feet for sale or lease. “We’re seeing tremendous activity on Conejo Vista because it was developed specifically for the types of users that we have in this region and there just aren’t a lot of alternatives for these companies,” Tingus said. San Fernando Valley Stability ruled the Valley during the quarter as vacancy held steady at 12 percent, the same as the previous quarter, according to Colliers International. Office tenants gave back an infinitesimal 1,200 square feet. On the other hand, lease rate jumped 10 cents from the previous quarter to $2.46 a square foot. Construction crews are building 218,000 square feet of new offices in the Valley. Main Events -Westfield Corp., owner of the Westfield Topanga & the Village shopping center in Woodland Hills, was acquired by French commercial real estate firm Unibail-Rodamco for $16 billion. Westfield also owns Westfield Fashion Square in Sherman Oaks and Westfield Valencia Town Center in Santa Clarita. u North Hollywood’s Lankershim Media Center sold for $23.5 million. Swift Real Estate Partners in San Francisco bought the nearly 74,000-square-foot office building at 4640 Lankershim Blvd. -Harrison Street Real Estate Capital in Chicago and Vukota Capital Management in Los Angeles bought two medical office buildings in Van Nuys for $22.4 million. The deal includes Valley Medical Plaza I at 14600 Sherman Way with 50,000 square feet and Valley Medical Plaza II at 14624 Sherman Way with 52,000 square feet. -Lake Balboa Care Center at 16955 Vanowen St. in Van Nuys, a nearly 13,000-square-foot skilled nursing facility, and Chatsworth Park Health Care Center at 10610 Owensmouth Ave., a 47,000-square-foot facility, sold to Sabra Health Care REIT Inc. as part of a $378 million portfolio. u McCormick Construction in Burbank broke ground on a 277-unit apartment complex at 6606 N. Variel Ave. in Woodland Hills. The project has a $60 million budget and is scheduled to finish in late 2019. -PDX Industrial Investments of Portland, Ore. bought the nearly 142,000-square-foot industrial building at 9401 De Soto Ave. in Chatsworth for $23 million. Rexford Industrial Realty Inc. sold the building, which sits on nearly 7 acres. u Platinum Executive Plaza with 78,000 square feet at 5900 N. Sepulveda Blvd. in Sherman Oaks sold for nearly $16.8 million. -Andrew’s Plaza, a nearly 22,000-square-foot mixed office and retail property at 11305 Magnolia Blvd. in North Hollywood, sold for $9.8 million. Yasam Legacy LLC was the buyer. -Keswick Manor, a 52-unit complex at 20135 Keswick St. in Winnetka, sold for nearly $13.3 million. Burbank and Glendale Burbank saw vacancy edge up to 10.9 percent as tenants deserted 81,700 square feet during the quarter. Rents went up as well, gaining 11 cents to $3.44 a square foot, the most expensive submarket in the Valley. In Glendale, vacancy rose to marginally to 13.7 and rents increased 2 cents to $2.78. Tenants vacated 12,600 square feet during the quarter. Neither Burbank nor Glendale had construction activity during the quarter, according to Colliers International. Main Events -A fund managed by CBRE Global Investors Ltd. paid $122 million for a nearly 878,000-square-foot portfolio that includes office buildings at 801 N. Brand Blvd. and 700 N. Central Ave., and a 50-percent stake in an adjacent parking structure at 127 Burchett St. in Glendale. -Griffin Capital Co. in El Segundo sold the 14.7-acre campus of DreamWorks Animation in Glendale to Hana Asset Management and Ocean West Capital Partners for $290 million. DreamWorks will continue to occupy the property. -Cusumano Real Estate Group sold the two-building 146-unit Village at Toluca Lake apartment complex at 211 and 235 N. Valley St. in Burbank for $59 million. Essex Property Trust Inc. was the buyer. -Blackstone Group paid $45.7 million for 166,000-square-foot Plaza Del Sol shopping center at 10950 Sherman Way in Burbank. -The Motion Picture & Television Fund sold the Nicholl Building at 4323 Riverside Drive in Burbank to Worchell Properties for $14.3 million. -The 34,300-square-foot industrial building at 1000 Air Way in Glendale sold for $15 million. -Burbank City Federal Credit Union purchased the 9,410-square-foot office building at 1918 W. Magnolia Blvd. in Burbank for $3.75 million. The buyer already occupies an adjacent location. Conejo Valley Vacancy surged to 16.2 percent from 15.5 percent the previous quarter as tenants gave back 49,200 square feet of space. Lease rates have not budged since the same quarter a year earlier, according to Colliers International. Main Events -Majestic Asset Management Inc. in Van Nuys sold two buildings in the Agoura Hills office campus called Tech Park @ Camwood at 5137 and 5155 Clareton Drive for $10.3 million to an undisclosed investor. The buildings total 42,000 square feet. -Limoneira Co. began construction on the Harvest at Limoneira master planned community in Santa Paula. It will include 1,500 homes and apartments, 100 assisted living units, commercial space and a sports park. Construction costs are estimated at $260 million. -The 62,225-square-foot Heritage Financial Center at 30851 Agoura Road in Agoura Hills sold for nearly $8.2 million. Santa Clarita Valley A steady march toward lower vacancy characterized Santa Clarita as tenants took 10,500 square feet off the market, nearly identical to the 10,600 square feet in the previous quarter. Office rents held steady at $2.55 a square foot. Main Events -Canyon Square Plaza, a 97,000-square-foot shopping center at 18507 Soledad Canyon Road in Canyon Country, sold to an undisclosed investor for $22.5 million. The seller was Kimco Realty Corp. in New Hyde Park, N.Y. -The 25,000-square-foot office building at 25322 Rye Canyon Road sold for $6.2 million to Rye Canyon Medical Center. -Valencia Studios, which has 121,000 square feet at 28343 Avenue Crocker, sold for $19.3 million. -A.S. Aerospace leased nearly 21,000 square feet at 21095 Centre Pointe Parkway. Financial terms were not disclosed. Antelope Valley Industrial vacancy declined to 1.2 percent in the quarter, while lease rates held steady, according to Colliers International data. A healthy 62,000 square feet were sold or leased during the quarter. In the office market, vacancy fell to 17.8 percent – better than the 19.9 percent of a year ago, but still the highest level of any Valley region submarket. Main Events -An investment partnership sold the location of a Rite Aid pharmacy with 15,482 square feet at 1356 W. Avenue J in Lancaster for nearly $7.2 million. -The medical office building at 38454 5th St. W. in Palmdale sold for nearly $7 million. DaVita has a 15-year lease to occupy the property. The 145-room Ramada Palmdale hotel at 300 W. Palmdale Blvd. sold for $5 million. -Avery Transport Inc. purchased the 61,120-square-foot warehouse at 42850 Signature Court in Lancaster for nearly $4.6 million. -The 72-unit West Oaks Apartments at 43120 30th St. W. in Lancaster sold for $7 million.

Michael Aushenker
Michael Aushenker
A graduate of Cornell University, Michael covers commercial real estate for the San Fernando Valley Business Journal. Prior to the Business Journal, Michael covered the community and entertainment beats as a staff writer for various newspapers, including the Jewish Journal of Greater Los Angeles, The Palisadian-Post, The Argonaut and Acorn Newspapers. He has also freelanced for the Santa Barbara Independent, VC Reporter, Malibu Times and Los Feliz Ledger.

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