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.