Entries in Office Market Report San Fernando Valley (3)

Wednesday
Mar022016

Q2 2015 San Fernando Valley and Ventura County Office and Industrial Market Repor4

Vacancies Fall to Single Digits in Some Submarkets as Rents Rise and Sales Activity Escalates

A strong economic rebound in several industries is escalating leasing activity and rapidly filling office space in select submarkets. Business is particularly strong for media and tech companies, financial companies, especially those that support real estate, and professional services firms including accountants and attorneys. These companies are expanding and creating brisk demand for office real estate.

Vacancies declined by 80 basis points (bps) in 2015 as leasing remained consistently active. The Los Angeles North office market finished the year with a vacancy rate of 13.1 percent, the lowest level since the third quarter of 2008 when vacancies were 12.8 percent.

 Leasing activity for the full year totaled 4,366,248 square feet, with 1,873,763 square feet of gross lease activity occurring in the second half of the year. The activity drove quarterly absorption to the highest levels in 11 quarters. In the fourth quarter, 383,100 square feet of space was leased on a net basis compared with negative absorption of 83,324 square feet in the prior quarter and 270,484 square feet of net leasing in the year ago period.

For the full year, 580,900 square feet of space was absorbed on a net basis, falling short of the 954,500 square feet absorbed in 2014, but more than twice the amount of space absorbed in 2013.

New media and tech tenants in particular are driving office demand in a number of submarkets and pushing vacancy levels down to single digits. Downtown Burbank, with vacancies of 6.4 percent; Universal and Studio City with a vacancy of 7.9 percent, the East Valley with a vacancy rate of 8.5 percent, are among the beneficiaries of the increased demand.

As the market tightens, asking lease rates are rising to their highest levels since the second quarter of 2010. At year end, lease rates averaged $2.35 per square foot, up $0.02 per square foot from the prior quarter and $0.05 versus the year-ago period.

A total of 90 office building sales were transacted in the full year, more unit transactions than in any year since 2005. Sale activity has been limited only by the lack of available product and there continue to be many more buyers than sellers in the marketplace.


Leasing and Absorption Slow as Vacancy Rates Decline to a Historic Low of 1.9 Percent

As expected, leasing activity began to slow in the fourth quarter as industrial space became impossibly hard to find. Just 438,793 square feet of space was leased, compared with 778,854 square feet in the prior quarter, and barely one quarter of the 1,758,015 square feet leased in the comparable year-ago period.

Leasing has not been this slow since the fourth quarter of 2008 in the peak of the recession, but the slowdown is understandable given vacancy levels of 1.9 percent as of the fourth quarter. The tight market is also taking a toll on absorption which declined to 481,100 square feet in Q4 compared to 741,826 square feet in the prior quarter.

The recent announcement that Xebec and Cor­nerstone Real Estate Advisors will be construct­ing two warehouse buildings totaling 361,000 square feet in Sun Valley, was welcome news to this space constrained region, but the new buildings will do little to solve the challenges that most of the businesses in the area are fac­ing.

Average asking lease rates are not showing any statistical increases, but the data is somewhat misleading. In some submarkets such as Bur­bank, warehouse inventory is being taken over for creative office uses at rates considerably higher than the averages. The same is true for newer buildings where deals are being consum­mated at average rates closer to $0.80 - $1.00 per square foot compared to the overall, $0.69 per square foot averages.

The desire by business owners to control costs in this rising rate environment, coupled with the continuing low interest rates, is driving an extremely active sales market for industrial properties and, here too, the statistical mean prices don’t always reflect the real dynamics underway.

Still, even the data suggests that building prices are escalating dramatically. For the full year 2015, 172 sales took place at a median price of $142 per square foot, up 28 percent from pre-recession prices. The fourth quarter saw median prices rise 42 percent to $201 per square foot versus Q3 and 76 percent com­pared to the year-ago period.

Slow Job Growth Puts Ventura County Office Market Behind Its Neighbors

The Ventura County office market continues to make strides toward recovery. At the same time we are still seeing some volatility, and the office sector here is still lagging some neighboring markets.

The office market results reflect findings by economists that job growth in Ventura County has been very lackluster. According to the Center for Economic Research and Forecasting at California Lutheran University in Thousand Oaks, jobs will grow at a meager 1.1 percent for the remainder of the year. The report found that job growth is part of a larger picture of weak population growth related to high housing costs and little new housing construction in Ventura County

Just slightly more than 1 million square feet of space was leased over 2015, about 500,000 square feet less than in 2014, and while Q4 vacancy rates fell 130 basis points (bps) versus Q3, the current 14 percent level still fell short of the comparable year ago period when vacancies registered 13.3 percent.

A total of 252,800 square feet of space was absorbed in the fourth quarter, compared with negative absorption of almost the same amount, 252,770 square feet, in Q3, suggesting that at least some of the activity in the market reflects internal movement, not new leases. For the full year, absorption was negative 49,700 square feet, another indication that leasing activity is being driven by companies relocating within the area.

Nevertheless, lease rates are showing fairly steady increases. Direct asking rates averaged $2.01 per square foot in Q4, a $0.02 increase over Q3 and $0.04 per square foot more than the year-ago period.

As has been the case throughout the year, sales activity is very strong. The median price of buildings sold in the fourth quarter rose 33 percent to $260 per square foot, compared to Q3 and 53 percent versus the year ago period. For the full year, the median price of office buildings sold was $203 per square foot, a 20 percent increase over 2014’s median price of $169 per square foot.

Ventura County’s Industrial Vacancies Decline to 4.3 Percent Restricting Options for Tenants

More than 3 million square feet of industrial space was leased in 2015 pushing a 25 per­cent year-over-year increase in absorption and driving vacancy rates down to their low­est levels since the fourth quarter of 2008.

Although leasing was less active in the fourth quarter than it had been in the rest of the year, the activity throughout the year and par­ticularly in the first half of 2015, was enough to push absorption to 703,600 square feet for the quarter and 1,437,000 square feet for the year. (Leased space is not counted in absorption figures until the tenant moves into the space.)

Just 468,811 square feet of space was leased in the quarter, less than the 546,804 square feet leased in Q3 and a little more than half the space leased in the year-ago pe­riod. Indeed, the majority of the year’s leasing activity, about 2 million square feet, occurred in the first half of 2015. Along with the sharp decline in vacancies to 4.3 percent, the num­bers indicate that many tenants are choosing to remain in place as space becomes harder to find.

Vacancies have fallen nearly 200 basis points from the 6.2 percent registered in Q4 2014, and are just 3.1 percent in the Oxnard submarket, 2.1 percent in Newbury Park/ Thousand Oaks and 2.8 percent in Ventura.

Although average asking lease rates slipped to $0.62 per square foot versus $0.65 per square foot in the prior quarter, a look at ask­ing rents by size range paints a very different picture of the market. While average asking rates for spaces larger than 20,000 SF have decreased, rates for space in the 5,000 – 10,000 square foot range have soared near­ly 12 percent over the past year, and at the close of 2015 averaged $0.85 per square foot.

As with leasing, the sales sector reflects considerable strength in Ventura County’s economy. The median price of industrial buildings sold in Q4 was $115 per square foot, unchanged from the prior quarter and a 22 percent increase over the year-ago period when the median price of buildings sold was $94 per square foot. As is occurring in the leasing sector, sales activity was hampered only by availability.

Lee & Associates Commerical Real Estate Services - LA North/Ventura, Inc.

Thursday
Nov132014

Q3 2014 Office and Industrial Market Report San Fernando Valley

Market Now Just Inches From Pre-Recession Highs as Dramatic Improvements in Absorption and Vacancy Levels Continue

The office market continued to make strong improvements in the third quarter with the highest absorption levels seen in several years, a dramatic drop in vacancy levels and healthy increases in median sale prices.

A total of 381,600 square feet of office space was leased on a net basis in the quarter, 85,562 square feet more than was absorbed in the prior quarter and the strongest absorption since the fourth quarter of 2012 when 396,740 square feet of net space was leased.

With strong absorption continuing now for five consecutive quarters, office vacancy rates fell another 60 basis points (bps) to 13.8 percent compared to the prior quarter, and are now nearly 200 bps below year-ago levels. Vacancies have been falling consistently for five quarters and in Q3 reached the lowest levels since Q3 2008.

Even Warner Center, where vacancies had reached peak highs during the recession and were very slow to recover, saw dramatic improvement with vacancy falling 130 bps to 13.1 percent in the quarter compared to Q2 and 140 bps compared to the year ago period.

Average asking lease rates seem to be recovering at a slower pace. Still, the average lease rate in the current quarter was $2.25 per square foot, down $0.01 from the prior quarter and an increase of $0.03 per square foot compared to two years ago.

Sales velocity has doubled since the height of the recession. In the year-to-date period, 33 office buildings changed hands driving the median price of buildings sold to $181 per square foot.

There were 13 office buildings sold in the third quarter at a median price per square foot of $251, compared to nine building sales at a median sale price of $181 per square foot in Q2.

Third quarter median prices were just 15 percent off their pre-recession highs of $295 per square foot in Q3 2007. Although sales velocity was far stronger in Q3 2007 with 36 buildings sold, it is important to note that the for-sale inventory in the Los Angeles North market is extremely constrained. In other words, sales velocity is limited not by demand but by the inventory available.


 Virtually No Room Left at the Inn-dustrial Table as Vacancies Tighten to 3 Percent

 To say that the industrial market continued its upward trajectory in the third quarter may be understating the case quite a bit.

Vacancies declined another 30 basis points (bps) in the quarter to 3 percent compared to the prior quarter and are now 100 bps below the already tight market of a year ago. In nearly half of the region’s submar­kets—Canoga Park, Glendale, North Holly­wood/Universal City; Northridge, Reseda/ Tarzana, Sun Valley and Woodland Hills – vacancies are sub-2 percent, offering very few options for tenants.

Average asking lease rates reached $0.65 PSF in the quarter, an increase of $0.01 PSF over the prior quarter and $0.03 more than the year ago period. Average lease rates have risen 16 percent since Q4 2011.

A total of 1,132,278 square feet of space was leased in the quarter, so far ahead of pre-recession levels that the year-to-date activity in 2014 (4,143,562 square feet) surpassed the full year activity in both 2007 (3,617,589 square feet) and 2006 (2,675,497 square feet).

Still, the current quarter activity was a con­siderable 45 percent below the year-ago period when 2,067,768 square feet of in­dustrial space was leased, and absorption slowed proportionately to 353,200 square feet, almost 143,000 fewer square feet leased on a net basis than in the compa­rable 2013 quarter and an indication that the tight market is having an adverse im­pact on these fundamentals.

As space becomes harder to find, we see a number of tenants opting to acquire fa­cilities when they find suitable buildings. There were 43 industrial buildings sold in Q3, a 68 percent increase over the prior quarter and 61 percent more than were sold in the year-ago period. The increased demand has pushed the median sale price of industrial buildings to $121 per square foot for the year-to-date period, an 11 per­cent increase over the median price of $109 per square foot in 2013. Although the median sale price for Q3 registered only $110 per square foot, that figure (and the year-to-date median) would likely be considerably higher had pricing been avail­able for 16 of the 43 buildings sold.


Thursday
Apr102014

Q 1 2014 Office and Industrial Market Report San Fernando Valley

Q1 2014

Market Moves a Tad Slower in Quarter, But Longer Term Trends Remain Positive

The Los Angeles North office market quieted down somewhat in the first quarter, although leasing activity continued to exceed 1 million SF.

Vacancy levels remained unchanged at 16.2 percent compared to the fourth quarter, and have fallen nearly 100 basis points (bps) compared to vacancies of 17.1 percent in the same period last year.

Just over 1 million SF of office space was leased in the quarter, about 38 percent less than the 1,624,000 SF leased in Q4 and down from the year ago period as well. The slowdown in velocity seems to have impacted absorption during the quarter, but it’s equally important to note that leasing has been strong now for the past nine quarters, an indication that the recovery in the office market is proceeding at a pace consistent with the economic growth we are seeing.

Only 31,200 SF of space was leased on a net basis during the quarter, down significantly from Q4 when net absorption totaled 298,035 SF. However, over the past 12 months, 504,000 SF of space has been leased on a net basis, amounting to a solid 1.1 percent growth in occupied space over that period.

With that level of progress, developers are reentering the market. Although the 200,000 SF of office space currently under construction is probably insufficient to make any real impact on available inventory, it is indicative of a return of confidence. Not to be overlooked, Laurel Canyon Plaza, a 90,000 square foot office building in North Hollywood and a neighboring retail building, was acquired by Goldstein Planting Investments for redevelopment.

Indeed, the Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey released late in January showed that sentiment in the office market is highest in Southern California. About 70 percent of the survey respondents in the region said they planned to commence one or more projects within the next 12 months.

Sales activity too slowed in the quarter with just 10 sales taking place, compared with 19 in the year-ago period. With fewer transactions, the median price of office buildings sold declined to $205 PSF in Q1 from $257 PSF in Q4 and $212 PSF in Q1, 2013. Still, several trophy properties changed hands including Tower Burbank and Westlake Park Place.


Industrial Absorption Rises to Pre-Recession Levels and Vacancies Fall Below 4 Percent

Following four quarters of robust leasing activity, absorption has risen to pre-recession levels and vacancy has fallen to the lowest levels the market has seen since 2009.

With little new construction and a resurgence of demand for industrial space, the upward trajectory of the Los Angeles North industrial market seems here to stay, at least for the time being.

Some 1,100,404 SF of industrial space was leased in the quarter, bringing vacancy levels down to 3.8 percent, the first time vacancies have fallen below 4 percent since the fourth quarter of 2009. Current vacancy levels have fallen 40 basis points (bps) compared with the prior quarter and year ago period, which both registered vacancies of 4.2 percent.

Not surprisingly, leasing velocity has slowed somewhat from the prior quarter when 1,475,538 SF of space was leased, as well as the year ago period when 1,824,794 SF was leased as options for businesses become extremely constrained. Eight of the 13 Los Angeles North submarkets now are operating with vacancy levels below 3 percent. In the North Hollywood/Universal City submarket, vacancy is 0.9 percent. In Northridge it is 1.2 percent and in Reseda/Tarzana it is 1.5 percent. Only the Antelope and Santa Clarita valleys show vacancy rates above 5 percent.

 

On a net basis, some 625,600 SF of industrial space was leased, more than in any quarter since the first quarter of 2006 when 645,688 SF of space was absorbed. Admittedly, we are still seeing some fluctuation in absorption rates, and negative 135,923 SF was registered in Q4, but given the solid leasing activity, the volatility is more likely due to the lapsed time between space leased and occupied.

Similarly the sales sector was more active than it has been in any first quarter since 2009 with 23 industrial buildings changing hands in the quarter. The median sale price rose 19 percent to $130 per square foot, compared with $109 per square foot in Q4.

Although there are still some distressed assets being cleared in the region, their numbers are minimal. In the current quarter, just two distressed properties changed hands, compared to six in the first quarter of 2013.