Q3 2015 Ventura County Office and Industrial Market Report

Industrial Vacancy Rates Reached Their Lowest Levels Since Q2 2009 in Ventura County

After holding steady for two consecutive quar­ters, vacancy rates declined 30 basis points (bps) to 5.6 percent in the third quarter, the lowest levels since the first quarter of 2009 and an improvement of 80 bps over the year ago period.

Space has been filling at a steady pace for a number of quarters now, and absorption has also shown steady gains. In the third quarter, 225,000 square feet of space was absorbed, more than 130 percent more than the prior quarter but well below the 424,694 square feet of absorption in the year-ago period. A similar pattern is found in year-to-date ab­sorption which registered 734,200 square feet for the first three quarters of 2015 com­pared to 1,239,900 square feet in the first three quarters of 2014. However, it’s impor­tant to note that the most recent patterns compare very favorably to 2013 when the first three quarters of the year saw negative absorption of 271,000 square feet.

The relatively small size of Ventura’s industri­al market has traditionally led to fluctuations in leasing activity, although each quarter has brought a steady flow of new leases. A total of 555,725 square feet of space was leased in the third quarter, down from 908,111 square feet in the second quarter of the year and from the 863,247 square feet of space leased in the third quarter of 2014.

Average lease rates have also seen similarly inconsistent increases. The average lease rate for the third quarter was $0.65 per square foot, $0.03 lower on a per square foot basis than the average in the prior quarter but $0.02 more than the average of $0.63 per square foot a year ago. Nevertheless, at $0.65 per square foot, the region’s lease rate reached its highest level since Q1 2009.

As is the case in other industrial markets, sales activity has continued to rebound along with sale prices. Year-to-date there were 58 industrial building sales at a median price of $113 per square foot compared with a me­dian price of $106 per square foot in 2014.

Quarter-to-quarter, median sale prices have been ticking up for the past four quarters. In Q3 there were 22 buildings sold at a median price of $115 per square foot, up from $94 per square foot in Q4 2014.

Vacancy Levels Dipped Again in Q3 Driving Average Lease Rates Up $0.05 vs. the Year-Ago Period

Leasing activity was moderate in the third quarter, totaling 250,988 square feet, but the continued steady leasing in the region was enough to knock vacancy rates down. Third quarter office vacancies dipped another 10 basis points (bps) compared to the prior quarter to 14.4 percent and are now 40 bps below the year ago period.

It would appear that the continuing activity is bolstering landlord confidence, and in Q3 we saw another bump in lease rates to $1.97 per square foot from $1.95 per square foot in Q2, and a $0.05 per square foot improvement over the year-ago period.

Absorption rates continue to indicate that the Ventura County office market is taking two steps forward and one step back. In Q3 a total of 23,200 square feet of space was leased on a net basis, somewhat more than the 16,839 square feet of net leasing that took place in Q2 but short of the year ago period when 34,216 square feet of office space was leased on a net basis. Year to date, absorption remained in negative territory with 23,500 fewer square feet leased than were vacated.

Recent news that homebuilder Ryland Group will be closing its Westlake Village office at the end of the year following its merger with CalAtlantic Group Inc. likely reflects continued upheaval for the area’s office market.

The market snapshot is a bit different on the sales side. With brisk levels of sales activity and limited supply, building prices are escalating. A total of 41 office buildings traded year-to-date in 2015 driving a 35 percent increase in prices. Year-to-date, the median price of buildings sold in the region was $191 per square foot, up from $142 per square foot for the same nine-month period in 2014.

For the third quarter, 28 office buildings traded at a median price of $187 per square foot. That median price is down from the prior quarter’s $219 per square foot, but only seven buildings traded in the second quarter of the year.

In summary, fundamentals in the Ventura County office market are showing steady, if slow, improvement consistent with the region’s larger economy.

Lee & Associates-LA North/Ventura, Inc., a member of the Lee & Associates Group of Companies, is a full service commercial brokerage company with offices in Sherman Oaks, Calabasas, Ventura and Antelope Valley. LA North is celebrating its 20th anniversary this year. Additional in­formation is available at www.lee-associates.com.

Q3 2015 San Fernando Valley Office and Industrial Market Report

Industrial Vacancy Rates in Los Angeles North Hit a 10-Year Low in the Third Quarter  

Industrial vacancies in the Los Angeles North market hit a 10-year low in the third quarter, declining to 2 percent from 2.4 percent in the prior quarter and 2.6 percent in the year-ago period.

Supply is even tighter when you consider that eight of the region’s 13 submarkets are op­erating with vacancy rates below 2 percent. Among them are Canoga Park, Burbank, Glen­dale, San Fernando/Sylmar/Pacoima/Arleta, Sun Valley and Van Nuys, communities with some of the largest concentrations of indus­trial space.

The severe space constraint is now beginning to affect leasing activity. Just 562,378 square feet of industrial space was leased in the quar­ter, the lowest level since the first quarter of 2009, and a 67 percent decline compared to the prior quarter’s 1,693,395 square feet of leasing.

Perhaps surprisingly, absorption held up in the third quarter with 716,800 square feet of industrial space absorbed. However, since space is not recorded as absorbed until the tenant moves in, current absorption levels re­flect leasing activity over the past several quar­ters, and it’s likely that we will see a substan­tial drop-off in absorption in coming months due to the constrained supply of inventory.

Average lease rates are now $0.71 per square foot, 22 percent above the lows reached dur­ing the recession. Landlords may push rates on a case-by-case basis, but the severe inven­tory shortage is likely to limit average increas­es for the region as we go forward.

Sales activity continues to be brisk although the number of buildings sold in the third quar­ter fell off compared to the prior two quarters of 2015. A total of 36 buildings traded in Q3 at a median price of $141 per square foot. That compares with 95 building sales at a median price of $133 per square foot in Q2 and 56 building sales at a median price of $141 per square foot in the first quarter of the year. The median price of industrial buildings sold in the current quarter reflects a 28 percent year-over-year increase.

Vacancies Continue to Decline and Lease Rates Rise as a Very Active Sales Sector Pushes Building Prices

Los Angeles North office vacancies dipped to 13.8 percent, a decline of 10 basis points (bps) in Q3 versus the prior quarter and 70 bps below levels in the year-ago period. The last time vacancy levels reached 13.8 percent occurred in Q4 2008 as the impact of the recession was just hitting the Los Angeles North office market. Ultimately, vacancy levels rose to 19.1 percent before beginning the current pattern of descent in 2010.

As space fills, landlords have become more willing to push rents, although the pattern of lease rate increases can best be described as cautiously assertive. In Q3 asking lease rates averaged $2.31 per square foot, $0.02 per square foot more than the average in Q2 and $0.05 per square foot above the year-ago period.

Lease rates in the region continue to remain well below pre-recession highs of $2.50 to $2.70 per square foot, an indication of the slower pace of job market recovery and the way office space is filling. Los Angeles County continues to underperform California and the country at large in employment and earnings recovery.

The spotty nature of the market’s performance can best be seen in absorption levels, which in the third quarter were a meager 61,800 square feet. That compares with absorption of 176,977 square feet in the prior quarter and 290,027 square feet in the year ago period. On a year-over-year basis, absorption was 342,892 square feet compared with 725,000 square feet in the same nine-month period in 2014.

While there has been a steady stream of leasing in size ranges from 2,000 to 5,000 square feet, the market also saw large blocks of space given back in some submarkets in the current quarter, among them, Burbank, North Hollywood and Warner Center, and to a lesser extent, Sherman Oaks and Encino. Except for Burbank, those submarkets all registered negative absorption levels in the quarter. That said, the pace of leasing activity in the last two quarters should push absorption levels up in Q4.

The sales sector continues to be the brightest star in the market with year to date median prices for office buildings rising to $223 per square foot, the highest levels since 2010, and the number of sale transactions on pace to exceed that of any recent year.

Lee & Associates-LA North/Ventura, Inc., a member of the Lee & Associates Group of Companies, is a full service commercial brokerage company with offices in Sherman Oaks, Calabasas, Ventura and Antelope Valley. LA North is celebrating its 20th anniversary this year. Additional in­formation is available at www.lee-associates.com.

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