Q1 2015 Office And Industrial Market Report San Fernando Valley

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.

North Ranch Atrium - Westlake Village Premier Office for Lease

Westlake Village is an affluent and tranquil community between the Los Angeles County and Ventura County line.  The city of Westlake Village is surrounded by the Santa Monica Mountains with beautiful recreational space. The weather is mild year round and attracts corporate office headquarters due to the lifestyle amenities and location to upscale communities with convenient access to the Ventura 101 Freeway. Thousand Oaks Boulevard, one of Westlake Village’s main transportation arteries offers a variety of retail attractions as well as some of the Conejo’s Valley’s best eateries.  Nestled in the heart of Westlake Village is the North Ranch Atrium Office building. This Westlake Village office has a variety of available office suites for lease. The perfect rental for all types of professional businesses, but also the unique atmosphere is the best added value to any company looking to relocate to an office complex with beautiful water features and tropical landscaping. This is truly a hidden jem in Westlake Village that also has convenient access to The Promenade at Westlake Village that is located directly across the street.  A short walk across the street to casual and fine dining for meeting clients and company get-togethers. The North Ranch Atrium is truly a home away from home with its relaxed setting.

To find out more about North Ranch Atrium, Westlake Village’s premier office for lease, please contact Cory Richmond at 818.444.4915 or Eric Nishimoto at 818.444.4984 for leasing availability. Please come visit www.ericnishimoto-re.com for more information about leasing and Westlake Village’s office rental market.  

Operating Expenses Pass Through – What extra costs am I responsible for?

Office buildings traditionally use a lease type called a Full Service Gross (FSG) lease.  This lease means your rent already includes taxes, insurance, utilities, repairs and maintenance, etc. except for your phone and internet.  It might seem that other than your fixed annual increase, this is the extent to your rent costs. However that is not always the case.  Pass through costs represent the share of a buildings operating expenses (Taxes, Insurance, utilities, repairs and maintenance, etc.) that the landlord passes on to the tenant each year.  A tenant will have the responsibility to pay their share of any increases in Operational Costs over their “base year”.  The Base Year is referred as the buildings Operating Costs of the 1^st year of the lease and is typically calculated to a “gross up” 95% occupancy level.  The ability to pass through Operating Expenses enables the Landlord to protect themselves against increases in cost due to inflation and other similar forces.  Most common leases favor the landlord and provides them with the ability to pass through these increases.

The landlord typically provides the tenant with their estimated share of Operating Expenses for the projected year based upon previous yearly Operating Expenses.  The tenant will pay 1/12 of their estimated Operating Expenses each month. At the end of each year, the landlord may provide to the tenant a final statement of the actual expenses for the prior year and either the landlord to refund the overpayment or tenant to pay the outstanding difference in balance.  

Putting a cap on annual “controllable expenses” (Building Service Contracts, Personal Salaries, Management Expenses, Capital Expenditures) is a way tenants can protect themselves from excessive pass through costs.   Also requiring the landlord to deliver to a tenant at the end of each year a detailed statement of the actual operating expenses for the prior year will affirm the pass though amount is correct.  On your lease be sure that the specific calculation to your percentage of space is stated and be aware of specific lease language on operating expenses that allows for additional expenses to be backed in.