Q1 2015 Office And Industrial Market Report San Fernando Valley
Thursday, April 23, 2015 at 9:47PM Vacancies Edge Up a Bit While Institutional buyers Drive a 17% Increase in Sales Prices
Office vacancies have remained in the 13 percent range for three straight quarters now, an improvement of 110 basis points (bps) from Q1 2014.
In Q1 2015, the vacancy rate was 13.7 percent, somewhat higher than last quarter’s 13.4 percent vacancy due in part to large chunks of office space that became available. In Sherman Oaks, for example, three spaces totaling 44,484-square-feet became available at 15260 Ventura Blvd., and four spaces totaling about 67,000 square feet including one measuring 25,204 square feet became available at 15301 Ventura Blvd. In Woodland Hills, a 27,694-square-foot space became available at LNR Warner Center and a 17,985-square-foot space became available at The Trillium in Woodland Hills.
Though still in positive territory, absorption slowed to 69,200 square feet, compared to 156,947 square feet in the prior quarter and 87,195 square feet of net leased space in the year-ago period. It should be noted that absorption has remained positive for nearly every quarter over the past three years.
Although not reflected in the data as yet, we have seen a significant uptick in activity recently, and job growth forecasts suggest that vacancy levels and absorption will post more significant improvements as the year progresses. A just-released forecast by Loyola Marymount University and Beacon Economics projects that Los Angeles County will add 75,000 jobs in 2015, amounting to a 1.7 percent rate of growth, just short of the 2 percent growth rate economists described as ‘robust’ last year. The unemployment rate is expected to decline to 7.3 percent by year end.
Sales activity in the quarter was robust, with 18 buildings changing hands including several institutional sales. The activity drove the median sale price up nearly 17 percent to $245 per square foot compared to the prior quarter and 36 percent higher than the year ago period. Among the quarter’s transactions was a Valencia medical office building acquired in a 97-building portfolio deal by Select Income REIT and sold on the same day to Senior Housing Properties Trust. Also among the quarter’s transactions was the sale of the Dreamworks campus in Glendale.
Sales and Prices Skyrocket and Asking Lease Rate Rise as Options for Tenants Shrink
Industrial sales activity took off like a rocket in Q1. There were 60 industrial buildings sold in the first quarter of the year, more than half the number of buildings sold in all of 2014.
The large number of sales is in part due to a portfolio sale that included 22 San Fernando Valley properties, accounting for nearly 37 percent of all the buildings sold in the quarter. Global Logistic Properties Ltd., Singapore, acquired 22 industrial buildings totaling 651,794 sf in Chatsworth, North Hollywood and Sun Valley. The Valley transactions were part of a 1,073-building, national portfolio that was sold by The Blackstone Group LP for just over $8 billion. In another of the transactions that took place in the quarter, Ikea acquired 13 industrial buildings totaling 402,919 sf to build its new mega-store in Burbank.
The Ikea transaction aside – it will effectively remove 400,000 sf of industrial buildings from the Burbank marketplace – the high level of sale activity mirrors what is happening nationally in the industrial real estate market.
Across the country, industrial investments have become a hot commodity pushing up values 17.8 percent over the past 12-month period, more than any other product type, according to Moody’s/RCA. The interest is nearly as strong for industrial properties in suburban markets, the report found.
The institutional transactions in the LA North region pushed the median sale price to $143 per sf in the quarter, up 25 percent compared to Q4, 2014 and a 10 percent increase over the median sale price of $130 per sf a year ago.
Vacancy rates fell another 20 basis points (bps) to 2.4 percent, and lease rates rose to $0.69 per sf, $0.02 higher than the prior quarter and an increase of 11 percent over the year-ago period.
Despite the tight market, 333,600 sf of industrial space was absorbed in the quarter, nearly 201,000 more square feet compared to Q4, but well below the 824,385 sf leased on a net basis in the year-ago period.
The lack of available space was more evident in the decline in leasing activity. Just 908,860 sf were leased in the first quarter, a 44 percent decline over Q4 2014 when 1,615,906 sf of industrial space was leased, and 34 percent less than the year ago period when 1,382,803 sf of space was leased.
