Q2: Industrial is Tight

A few substantial changes in vacancy rates in the office and industrial sectors while inventory remained low on the industrial side characterized the commercial real estate market during the second quarter, according to statistics provided by Colliers International and conversations with well-placed brokers in the region. East Valley offices In the office market, Burbank and Glendale moved in opposite directions as Burbank’s vacancy moved substantially lower to 9.9 percent and Glendale’s higher to 18 percent – the latter predominantly because of Nestle’s exit from 800 N. Brand Blvd. In total, tenants vacated 151,400 square feet in Glendale. “There were a couple of 50,000-square-foot buildings that went on the market in the second quarter of 2018 whereas in the second quarter of 2017 some of those buildings ended up being leased,” said Los Angeles Managing Director Suzanne Lee at Cushman & Wakefield. “In a market that historically has been driven by small to medium-sized tenants, these buildings will always have a bigger impact on the vacancy rate. Despite a slight increase in the vacancy rate, the market continues to perform well.” Lee added that while the overall vacancy rate in Glendale “sounds high,” it is deceptive. Major exoduses by Nestle and YP (Yellow Pages) at 611 N. Brand Blvd. account for 300,000 square feet. Once those are factored out, “that brings the direct vacancy rate down to 11 or 12 percent,” Lee explained. “Glendale is overall much healthier than the numbers would indicate,” she continued. “The investor sentiment in that submarket has just exploded in the last 24 months. They have traded at an extraordinary pace; almost half of the class A space has changed hands, in general to institutional owners.” Among those deals: CBRE Global Investors’ $122 million acquisition of 801 N. Brand Blvd., 700 N. Central Ave. and a 50 percent ownership of a 127 Burchett St. parking structure from the Blackstone Group earlier this year; DivcoWest’s acquisition of 655 N. Central Ave. last year; and Canadian real estate firm Onni Group gobbling up 611 and 700 N. Brand Blvd. last year. “That’s an extraordinary amount of transaction volume for the size of Glendale,” she said. “The investor community sees Glendale as the last undervalued L.A. office market.” In Burbank, vacancy fell 2.5 percent from previous quarter and 3.5 percent year over year. Burbank had a net absorption of 9,300 square feet. Dominated by a single-owner Worthe Real Estate of Santa Monica, in partnership with Blackstone, “Burbank is a much more stable market based on the quarter movements,” Lee said. In terms of lease deals, Burbank continues to attract tenants from other media markets: entertainment, media and tech companies that would be interested in setting up shop in Hollywood and the Westside and downtown’s Arts District, as well as tenants typical of the Tri-City continuum. Warehouse crunch With some 94,900 square feet under construction and 137,000 square feet sold and leased during the quarter, industrial space in the East San Fernando Valley remains at a premium. Vacancy rose during the quarter to 0.5 percent, compared to 0.2 percent a year ago. “The decrease in activity … is due to the lack of available product on the market,” said Cushman & Wakefield Los Angeles Associate Paul Sims, who specializes in industrial brokerage. “Tenants remain active but are having a tough time finding suitable product to fit their needs as there is just nowhere to go unless you start exploring the West San Fernando Valley and Santa Clarita or Valencia markets. Owner-occupiers are still very active in the market, but with rising sale prices they again are less willing to settle for product that doesn’t fit all their needs.” Farther north, the Santa Clarita Valley has 544, 600 square feet of industrial under construction, while the struggling Antelope Valley has a mere 59,800 square feet of warehouse space in the works. “The industrial market is super tight for the lack of availability,” said NAI Capital Encino Vice President Tristan Greenleaf. “The market is about as tight as can be.” A combination of factors – rising construction labor and material costs, plus the Antelope Valley’s distance from the 5 freeway – have limited construction in the area. “That said, for manufacturing purposes, we offer great affordability,” Greenleaf said, noting Northrup Grumman’s $80 billion B-21 bomber contract will keep industry humming in Palmdale. A month ago, Greenleaf listed 42225 10th St. W. in Lancaster, where the Social Security Administration signed a 10-year lease this past spring, for sale as an investment property. Ultimately, Greenleaf believes that as neighboring valleys such as Santa Clarita get tapped out, the office market will look a lot greener in Antelope. “A lot of money is pouring into the Antelope Valley, mainly from federal spending, that is improving every single sector of real estate,” Greenleaf said. “The Antelope Valley is the most affordable in the L.A. area. Everything is getting more expensive. You can leave the county – or you can go to Antelope Valley.” SUBMARKETS San Fernando Valley Vacancy ratcheted down in the Valley during the second quarter to 11.6 percent as office tenants absorbed 190,900 square feet. Lease rates remained unchanged at $2.51. In the industrial market, vacancy fell to 0.9 percent with 347,000 square feet of space either sold or leased during the quarter. However, industrial space became more expensive as rates increased to 90 cents from 77 cents the previous quarter. Construction crews are building 218,300 square feet of new offices and 94,000 square feet of new industrial facilities, according to Colliers International. MAIN EVENTS -Canada’s Triple Five Group Ltd., which owns the Mall of America in Minneapolis, the largest mall in the nation, is in the process of buying the former Aerojet Rocketdyne site in Woodland Hills. The 47-acre property at 6633 Canoga Ave. in Warner Center is expected to fetch approximately $150 million. -Majestic Asset Management of Agoura Hills sold a building in Corporate Center Calabasas 26565-26707 W. Agoura Road in Calabasas for $11 million. -Palms Plaza shopping center at 6005 Vineland Ave. in North Hollywood sold for $6 million. Ginger Investors purchased the two-story, 15,870-square-foot retail property. -A pair of Reseda apartment buildings at 7249 Baird Ave. and 18540 Wyandotte St. with a combined 39 units sold for $9.3 million to Wyanbaird. -Beauty company Coty Inc. opened its professional division headquarters on a 26-acre campus at 4500 Park Granada in Calabasas, consolidating operations from Woodland Hills and North Hollywood at the new location. -Pacific Storage Partners paid $11.4 million for the 79,292-square-foot Easton Building at 7855 Haskell Ave. in Van Nuys. -The Reseda Gardens apartment complex at 6251-6267 Reseda Blvd. in Tarzana traded hands for nearly $11.3 million, or $216,346 per unit. The complex has 52 units and about 42,000 square feet. -The Park Place apartment complex at 8700 De Soto Ave. in Canoga Park sold for nearly $17.6 million. The complex contains 61 units. -In Reseda, the 10,873-square-foot retail property at 18815 Sherman Way sold for $3.8 million. The property has a car wash, an auto repair shop and an audio installation shop as tenants. Burbank and Glendale Burbank’s vacancy fell to 9.9 percent as tenants took 77,600 square feet off the market during the quarter. However, rents fell 14 cents to $3.32 a square foot in the Valley’s most expensive office market. The opposite trends occurred in Glendale, where tenants vacated 151,400 square feet of space and lease rates rose 8 cents to $2.86, according to Colliers International. Glendale’s vacancy rose to 10 percent from 15.5 the previous quarter. MAIN EVENTS -Warner Bros. renewed its 456,000-square-foot lease at 3400 W. Riverside Drive in the Burbank Media District. -Jones Lang LaSalle Inc. has taken over property management for Burbank Town Center at 201 E. Magnolia Blvd. and Glendale Marketplace at 106 S. Brand Blvd. Together, the properties have 1.3 million square feet of retail space. -The 26,320-square-foot industrial property at 1120 Scott Road in Burbank sold to Electronic Theatre Controls for $12 million. The seller was the DeLeon Family Partnership. -The 11,162-square-foot retail center at 400 S. Glendale Ave. in Glendale sold for $2.4 million. -Osbrink Talent Agency spent nearly $3.4 million to buy a two-building, 5,000-square-foot property at 2222 W. Olive St. in Burbank. The previously vacant buildings include 10 office suites and a two-bedroom live/work unit. -The 10-unit apartment complex at 317 Western Ave. in Glendale sold for $2.9 million. -The apartment building with eight units at 1412 N. Keystone St. in Burbank sold for $2.7 million. Conejo Valley Tenants returned 10,000 square feet to the market during the quarter, resulting in a slight uptick in vacancy to 15.2 percent. Lease rates rose 1 cent to $2.34. In the industrial market, vacancy fell to 0.6 percent as 237,000 square feet were either sold or leased and industrial lease rates fell 2 cents to 90 cents a square foot. MAIN EVENTS -The 53,133-square-foot former corporate headquarters for K-Swiss at 31248 Oak Crest Drive in Westlake Village sold for $11 million to an entity of Selleck Development Group. -The 49,585-square-foot industrial property at 851 Lawrence Drive in Thousand Oaks sold for $6.6 million to Rexford Industrial Realty. -New Life Mission Church purchased the 15,494-square-foot office building at 3045 Old Conejo Road in Thousand Oaks for $2.2 million. -Allied Pacific Studios leased a 1,000-acre portion of the Simi Valley Landfill to develop a movie ranch. Santa Clarita Valley Vacancy spiked during the second quarter as tenants put 79,500 square feet back on the market. That elevated the vacancy rate to 16.5 percent, compared to 12.7 percent in the previous quarter, according to Colliers International data. Rates fell a penny to $2.54 a square foot. In the industrial market, vacancy increased to 6.9 percent as developers have 544,600 square feet under construction. MAIN EVENTS -The single-story building at 28545 Livingston Ave. in the Valencia Commerce Center, which has 173,056 square feet, sold for $20.7 million to First Industrial Realty Trust Inc. in Chicago. -AEW Capital Management sold a 60,923-square-foot building in the Valencia Gateway development at 27909 Hancock Parkway for $10.5 million. -The office building at 21080 Centre Pointe Parkway with 7,240 square feet sold to Spirit Properties for $1.86 million. Antelope Valley Industrial space remained scarce, even though vacancy has doubled in the last year to 1.4 percent. Industrial lease rates held steady at 55 cents. A healthy 59,800 square feet were sold or leased during the quarter. In the office market, vacancy fell to 9.3 percent – significantly better than the 17.8 percent last quarter – as tenants took 76,600 square feet off the market. MAIN EVENTS -Valuerock Investment Partners bought the 54,942-square-foot retail property at 40022 10th St. W. in Palmdale, currently anchored by Hobby Lobby, for nearly $10.2 million. -Eretz Antelope Valley Properties bought the 32,527-square-foot Lancaster Healthcare Center at 1642 W. Avenue J in Lancaster for $6.5 million. -Arby’s restaurant location at 1037 W. Rancho Vista Blvd. in Palmdale sold to Rancho Vista Group for $3.4 million. -Fraber Properties sold the office building at 176 Holston Drive in Lancaster for nearly $7.8 million.