Brokers Count on Housing Boom to Lift Busted Office Market

After a series of large purchases and leases earlier in the year, the Santa Clarita office market settled down and consolidated around mostly small deals during the fourth quarter. Vacancy showed an uptick to 21 percent compared to 20.6 percent the previous quarter, with about 8,300 square feet going back on the market, according to data from the Los Angeles office of Colliers International. Asking rents averaged $2.36, down from $2.39 the previous quarter. “Overall, the market has been flat,” said Kevin Fenenbock, a senior vice president at the Collier’s Valencia office. “For years, we have had significant negative absorption. What is happening to change that is not leasing activity – it was the result of a trend in the last year of new owners taking buildings off the market.” Indeed, with interest rates still relatively favorable there were several notable sales. One of the few large deals in the fourth quarter was the $9.7 million sale of the Bank of America tower at 23929 Valencia Blvd. One of the tenants, insurance firm Petersen International Underwriters, bought it. That followed the third-quarter purchase by Sunkist Growers Inc. of the 96,115-square-foot LNR Entrada Gateway Center in Valencia, and the second-quarter sale of a 116,000-square-foot industrial building in Valencia to Canyon Engineering Products Inc. “These owner-users can justify paying the highest price, and the sellers don’t have a lot of options,” Fenenbock said. “For Petersen, it made economic sense. They look at it as an investment and also a home. But if you were looking at it as a pure investment play – buying the property and collecting rent – I think the price would have been lower.” David Solomon, senior vice president at CBRE Inc.’s Universal City office, sees the fortunes of the sub-market connected to its future residential development. Santa Clarita expects 20,000 residential units to come on the market in the next few years, and Solomon said that will attract builders, title companies, escrow firms, mortgage lenders and other real estate-related tenants to the region. “As the residential market improves, it’s logical to expect all those industries will expand at the same time,” he said. “Also, we’re seeing more and more service companies such as accounting firms, law firms and financial advisers, and that trend will continue.” For example, in the fourth quarter, Benchmark Communities, a homebuilder looking to expand beyond its base in Northern California and Washington State, took a 60-month lease for 5,000 square feet at the Tourney Pointe building at 27200 Tourney Road in Valencia. Financial details of the transaction were not disclosed. Also, MultiState Insurance Services took 7,600 square feet at Valencia Corporate Center, located at 27451 Tourney Road in Valencia. Financial terms of the 60-month lease were not disclosed. In the industrial market, Colliers reported a vacancy rate of 5 percent, up from 4.7 percent the previous quarter. Asking rents were 42 cents a square foot, the lowest in the greater Valley region. Fenenbock at Colliers said the market has stabilized, and while he doesn’t see rents rising in the near future, he doesn’t think they’ll drop either. “Most of the activity in 2014 will be smaller tenants renewing, relocating and possibly expanding,” he said. “The people who are in space have downsized and become more efficient, so all we have is room to grow once there’s more optimism on the economy.” – Joel Russell -Main Events Harbor Freight Tools, a Calabasas chain of discount tool stores, signed a lease to open a Santa Clarita location. The 21,306-square-foot outlet will open inside a vacant space next to a 99 Cents Only store at 23314 Valencia Blvd. Harbor Freight has more than 450 locations nationwide including Valley outlets in Woodland Hills, North Hollywood, Lancaster, Simi Valley and Camarillo. Asset Management Consultants Inc. of Northridge sold the 42,000-square-foot Bank of America Tower in Santa Clarita for $9.7 million to Petersen International Underwriters of Santa Clarita. The four-story tower at 23929 Valencia Blvd. was built in 1980 and is about 91 percent leased, with no tenant occupying more than 5,500 square feet. Intertex Cos. of Valencia sold a 13,000-square-foot strip mall to Tourney Shops LLC of Los Angeles for $7.4 million. The property at 25343 Wayne Mills Place is about 83 percent leased and tenants include a small collection of restaurants and a Starbucks outlet. It was built in 2006 on 2.2 acres. Trion Properties Inc. bought an underperforming Valencia office and retail property for $6.9 million from a Montrose family trust. The L.A. real estate investment firm mostly acquires distressed assets. The 26,186-square-foot property at 24510 Town Center Plaza Drive was only about 40 percent occupied when the purchase closed. Since then, the firm has inked several new retail tenants, including an upscale furniture store and Apollo’s Barber Shop, a trendy men’s groomer. The office space on the second floor is still mostly vacant. Santa Clarita Valley Office Market At a Glance Inventory: 2.29 million square feet Under Construction: 0 Class A Asking Rents: $2.36