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.

Q4 2014 Office and Industrial Market Report San Fernando Valley

Office Market Makes Significant Strides as Absorption Rises Three-Fold vs. 2013

What a difference a year makes! The banner recovery in the office market was marked by huge improvements in absorption and a steep drop in vacancy rates compared to 2013.

For the full 2014 year, absorption increased nearly three-fold to 954,500 square feet compared to 241,400 square feet of net absorption for 2013. Vacancy rates, which have been declining for seven straight quarters, ended the year at 13.1 percent, down 180 basis points (bps) over the fourth quarter of 2013; and the median price of buildings sold in 2014 increased 17 percent to $189 per square foot compared to a median sale price of $161 per square foot in 2013.

Leasing activity slowed in the fourth quarter, with 676,067 square feet of office space leased compared to 949,761 square feet of leasing in Q3, and 1,699,334 square feet of leasing in the year-ago period. However, current leasing activity more closely approximates the leasing levels we saw quarterly prior to the recession, indicating that the market is simply returning to more stable, prerecession levels.

Similarly, average asking lease rates are not showing a great deal of movement. The average asking rate was $2.26 per square foot in the fourth quarter, unchanged from the prior quarter and just one penny more than the rate in the year ago period. But the averages do not reflect the recovery in some Class A buildings in primary submarkets such as Sherman Oaks, Calabasas, Studio City and the East Valley where landlords are commanding lease rates in excess of $3 per square foot.

For the year, 65 office buildings traded, somewhat less than the 83 buildings sold in 2013, but the sales sector was far more active than it had been earlier in the recovery. There were 47 building sales in 2012 and just 31 in 2011.

A total of 10 buildings traded in the fourth quarter at a median sales price of $225 per square foot, a 49 percent increase over $151 per square foot for the fourth quarter of 2013. Among them, the 44-acre Northridge Business Center which will undergo redevelopment.

Severe Shortage of Product to Lease Contributes to Most Robust Sales Activity Since 2006

 The Los Angeles North industrial market has become impossibly tight, leading to a falloff in leasing activity and with it, weak­ening absorption rates. On the other hand, sales activity has been robust as compa­nies unable to find space to lease are turn­ing to acquiring facilities, especially with today’s low interest rates.

The vacancy rate in the fourth quarter dropped to 2.4 percent from an adjusted 2.7 percent in the third quarter and 3.9 percent in the year-ago period. Even more telling, if you remove the space available in the Antelope Valley and the Santa Clarita Valley, vacancies would be 1.6 percent.

Considering the tight market, leasing activ­ity held up pretty well in the fourth quarter with 1,013,034 square feet of deals trans­acted, just slightly less than the 1,247,788 square feet of space leased in the prior quarter, but nearly one half million square feet less than the year-ago period. Lease rates have risen 8 percent compared to the year-ago period and are now averaging $0.67 per square foot.

Last year at this time the market was still giving back space with a number of sub­markets reporting more space vacated than was leased. Just 283,100 square feet of space was absorbed in the full 2013 year as a result. By comparison, full year absorption for 2014 was 1,842,100 square feet, with virtually no negative ab­sorption anywhere in the region. But ab­sorption has been trending downward on a quarter-to-quarter basis as the market has tightened. In Q4, 319,100 square feet of space was leased on a net basis compared with 373,472 square feet of absorption in Q3.

There were 104 industrial building sales in the region in 2014, more than in any other year since 2006 when 117 buildings traded hands.

While median sale prices have been ris­ing steadily since 2011, prices have still not caught up with the market peak. For 2014, the median price of buildings sold was $118 per square foot, an 8 percent increase over 2013 and 12 percent high­er than 2012 when the median price of buildings sold was $105 per square foot.

Northridge Warehouse for Lease

18555 Eddy Street in Northridge is a freestanding industrial warehouse for lease. The steel frame structure, concrete block and corrugated metal building is approximately +/- 7,040 SF. This Northridge warehouse has one large 14x14 ground level electrical roll up door and one 14x14 sliding door that leads into a private and gated outdoor area. The minimum building clearance is 14 ft. from the sides and up to 24 ft at the center. This Northridge warehouse has approximately 6,000 SF of warehouse space with the remaining balance of highly improved modern office space on two floors. Power – 200A 120-240V 3Ph(Verify). There are 4 restrooms, 2 separate entrances, storage room, reception area, kitchen area, open bullpen space, and several private offices. The image and environment is creative and has unique qualities as compared to other traditional Northridge, Chatsworth and Canoga Park industrial buildings. Very creative space with modern offices and airplane hanger feel warehouse space.

Located in the State Enterprise Zone, this Northridge industrial warehouse has pole signage and abundant street parking and on a cul-de-sac.  This Northridge industrial building is zoned commercial manufacturing (CM) http://www.amlegal.com/nxt/gateway.dll/California/lapz/municipalcodechapteriplanningandzoningco/chapterigeneralprovisionsandzoning/article2specificplanning-zoningcomprehen/sec12171cmcommercialmanufacturingzone?f=templates$fn=default.htm$3.0$vid=amlegal:lapz_ca$anc allowing for  a wide range of uses.      

18555 Eddy Street, Northridge is located between Amigo Avenue and Baird Avenue with the closest major intersection at Reseda Boulevard and Parthenia Street, Nordhoff Street to the North and Roscoe Boulevard to the South, Tampa Avenue to the West and Balboa Boulevard to the East.  Other close located streets are Yolanda Avenue and Rayen Street.

Businesses in the area include automotive (auto body, restoration, service center and tires), tile and marble, steel and construction, self-storage, food and services, plumbing, electrical, remediation and a variety of other uses.

Q2 2014 Office and Industrial Report San Fernando Valley

A Surge in Leasing Activity and Marked Improvement in Employment Drives Vacancies Down and Lease Rates Up

Another surge of leasing activity and marked improvement in employment levels drove office vacancy rates down to 15.5 percent in the second quarter compared to 15.8 percent in the prior period. Vacancy has improved by 150 basis points (bps) compared to the year-ago period.

There were 1,355,898 square feet leased in the quarter, up nearly 20 percent over the prior quarter although 365,762 square feet less than the space leased in the year-ago period. Velocity declined 18 percent from the first half of 2013 as well. A total of 2,492,863 square feet was leased in the first half of 2014 versus 3,039,301 square feet leased in the first half of 2013.

But the modest slowdown comes as lease rates show increasing strength. The average lease rate in Q2 was $2.27 per square foot, up $0.03 per square foot from the prior quarter and $0.05 per square foot compared to the year-ago period. Indeed, much of the pressure landlords were feeling to lease their buildings last year has subsided, and the average asking rate in the current quarter is the highest we have seen in the market since the fourth quarter of 2010.

It should be noted however, that average asking rates are still16.5 percent off their highs of $2.72 per square foot in Q2 2008

Absorption has been positive for the past four quarters with another 210,100 square feet absorbed on a net basis in Q2. This follows a Q1 absorption rate of just 59,131 square feet and a significant improvement from the year ago period when 179,715 fewer square feet were leased than were vacated.

Median sale prices for office buildings have been trending upward for the past three quarters and registered $196 per square foot in Q2 with a total of 10 buildings sold. Including distressed sales and those for which no sale price was reported, the median price was $230 per square foot with a total of 12 building sales.

Year to date the median price of buildings sold in the region was $190 per square foot. There were 22 office buildings sold in the period. Prices have risen 6 percent compared to 2013 when the median price of buildings sold was $179 per square foot.

 Industrial Vacancies Continue to Fall and Sales Momentum Builds

 Vacancy levels in the Los Angeles North in­dustrial market fell even further and the steady pace of absorption continued in the second quarter.

Vacancies declined to 3.4 percent in the quarter, down 20 basis points (bps) from the prior period and 110 bps compared to the year-ago period. Nine of the area’s 13 sub­markets are now showing vacancy levels be­low 3 percent leaving few options for tenants looking for industrial space.

Absorption has been very strong, and in Q2 2014 354,300 square feet was leased on a net basis. By comparison, 423,752 fewer square feet were leased than were vacated in the second quarter of 2013. For the year to date, 1,034,000 square feet of space was absorbed versus 233,723 square feet of ab­sorption in the first half of 2013.

With the steady pace of improvement, land­lords are beginning to increase rents. After more than two years with little change in lease rates, the average rate rose by $0.02 per square foot compared to the prior three quarters to $0.64 per square foot and by $0.03 per square foot versus the year ago period. The last time average lease rates were $0.64 was the third quarter of 2009.

While rock-bottom vacancy levels and expec­tations that lease rates will continue to rise are fueling investment activity, the shortage of suitable buildings is spurring more busi­ness owners to opt for purchasing rather than leasing their space. In the year-to-date period 42 industrial buildings were sold at a median price of $128 per square foot, an in­crease of 17 percent in the price of buildings sold compared to 2013. Sale prices have risen 28 percent over the past two years.

For the most recent quarter, 19 buildings were sold at a median price of $120 per square foot. Including distressed properties and those for which no sale price was report­ed, 25 buildings were sold at a median price of $119.

Much has been written recently about the constrained supply for industrial buildings, and nowhere is that more true than in the Los Angeles North market. The conversion of much of the area’s manufacturing real estate to multifamily or retail space and scarcity of raw land has left few opportunities for the development of new inventory, and a mere 59,000 square feet of new industrial con­struction is currently underway.

Q4 2012 San Fernando Valley Industrial Market Report

Q4 2012 San Fernando Valley Industrial Market Report (Click Here)

Q3 2012 San Fernando Valley Industrial Market Report

Q3 2012 San Fernando Valley Industrial Markert Report (Click Here)