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Friday, Jun 21, 2024

SPECIAL REPORT: Creative Office Drives Deals in Valley Markets

The second quarter was full of real estate stories that were good in some pockets of the greater Valley region – and not so great in others. In the Tri-Cities, the subject of the story is creative office. Industrial-to-creative office conversions are a trend in Glendale, and the high ceilings and polished concrete floors are in demand by entertainment and technology companies, according to Shadd Walker, senior executive vice president with Colliers International in Irvine, which provided data for the Business Journal’s Real Estate Quarterly Special Report. A recent example Walker gave was his sale of 1840 Dana St. in Glendale for $4.25 million to Ping Pong Productions in Hollywood, a producer of reality television shows. The company is going to move into the 13,500 square foot space once it’s retrofitted the industrial origins into creative office. The seller was Rexford Industrial Realty Inc. in Los Angeles. “That’s who our market is,” Walker said. “An industrial company would not buy this building at that price point,” because it’s higher than the traditional users of that space – manufacturers – will pay. Creative office was also the driving factor behind a recent deal in Burbank, Walker said. Team Services, which does accounting and payroll for the entertainment industry. leased 25,000 square feet at 901 W. Alameda St., the former site of the Original Martino’s Bakery, which owner Rexford bought when it was still a bakery facility and converted it into creative offices But in the Conejo Valley, the office story is not so good. The small number of prospective tenants looking for space and the low amount of square footage they’re interested in is at a record low, said Michael Slater, a senior vice president with L.A. based CBRE Group Inc. “It’s not a great story,” Slater said. “Activity is way down.” Typically, he said, about 70 to 100 tenants at any one time are looking for new space in the Conejo Valley. Recently, it’s been 43. That’s based on data that tracks tenants occupying a minimum of 5,000 square feet. One factor, Slater said, is the lingering economic uncertainty among businesses, now compounded by new uncertainties relating to the presidential election. Another is the annual spring-to-summer slow pace of activity, he added. There are signs the submarket’s declining vacancy rates will soon climb. More space is either coming onto the market or will soon, as several companies are leaving. Slater cited Prodovis Mortgage, a subsidiary of Denver-based MountainView Capital Holdings, has put its 80,000 square feet on the market as a sublease. Then, Kythera Biopharmaceuticals Inc. will leave its 24,000 square feet in Westlake Village. The company was acquired by Allergan plc in October. And Bank of America Corp. is putting about 70,000 square feet on the market in Agoura Hills for sublease, Slater said. The Conejo Valley’s industrial market also didn’t see much activity over the second quarter, but that was because there’s barely any space available – it’s 99.9 percent occup ied, according to Jeff Abraham, a vice president of Colliers in Irvine. New space will come onto the market in roughly a year. A Colliers client for lease and sales, Sares-Regis Group in Irvine, recently bought 29 acres in Thousand Oaks to build nine buildings on speculation that Abraham and other Colliers brokers will be listing for lease, Abraham said. The buildings range in size from 35,000 square feet to 95,000 square feet and each will have 28-foot clear height ceilings, multiple dock-high loading doors and fenced yards. “This could work for manufacturing, but it’s great for wholesale distribution,” Abraham said. Compare that story to Simi Valley, where industrial vacancies are atypically high. That’s due to a few available buildings that have been on the market for years because they are 100,000-plus square feet, a product type that local distributors don’t need, Abraham said. What’s in short supply are the smaller, 30,000-plus size buildings, he added. In the San Fernando Valley, available industrial space continues to shrink and the hottest sizes right now – between 5,000 square feet and 10,000 square feet – are even harder to find. “There’s practically nothing available to suit those types of users,” said Daniel Frees, associate vice president with Daum Commercial Real Estate Services in Los Angeles. “If we do get a listing that’s super-small. it’s gone immediately.” Sale prices for industrial buildings are climbing quickly, Frees said, and new construction is almost non-existent because construction costs are so high and there’s no land available. In Van Nuys, sale prices have skyrocketed. Frees cited his client, an owner/user, who bought a building in Van Nuys for $3 million but the demand was so high that he flipped it a month later and sold it for $4 million. Another client – an entertainment industry equipment provider – has been searching for six months for 8,000 square feet to 12,000 square feet in North Hollywood or Burbank. “Businesses are looking to move and expand and can’t find space to fit their business, and are forced to make due with what they have,” Frees said.

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