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Valley's Office Vacancy Rate Lowest for Major Market

Real estate: Report says only 12% of commercial space is available and rents are rising, forcing entertainment industry to seek buildings elsewhere.


The San Fernando Valley continues to have the lowest office vacancy rate of any major market area in Southern California, according to a mid-year report by the real estate brokerage firm Grubb & Ellis.

Vacancies are approaching historic lows and lease rates are rising in the Valley, according to the analysis.

Out of 24 million square feet of existing office space in the San Fernando Valley, only 2.8 million square feet--or 12%--is available for lease, the report said, compared with an average of 17% for all of Los Angeles County.

And in the East Valley, home to entertainment giants NBC, Warner Bros., Universal and Walt Disney Co., the vacancy rate for top-market, "class A" buildings is less than 1.7% and is expected to dip below 1% before the year's end, said Madalyn Seyer, director at Grubb & Ellis' Sherman Oaks division.

After gobbling up almost all of the large rental spaces in the East Valley, the television and movie industry has begun to spill out into areas outside the Valley, said Rosey Miller, senior vice president and office specialist with Grubb & Ellis' West Los Angeles office.

"The vacancy rate in the East San Fernando Valley has rarely exceeded 7% this decade," said Miller. "With such dire shortage of space, demand from the entertainment industry has spread to West Los Angeles, Glendale and now even the South Bay."

The Walt Disney Co., for example, bought 96 acres of property in Glendale last week.

The San Fernando Valley, like the rest of Los Angeles County, is mostly an infill market with limited opportunities for further development, Miller said.

The Valley real estate market has almost recuperated from the recession of the late '80s and early '90s, when the office vacancy rate neared 16% and property owners offered tenants generous incentives such as customized building interiors, Seyer said.

Now that available office spaces have shrunk, their market value has ballooned.

Monthly lease rates for all building types, even Class C buildings (lower- to mid-rise buildings), have risen 8% since 1994, from an average of $1.80 per square foot in 1994 to $1.95 today.

"It's definitely a landlord's market," Seyer said.

Higher leases should foment more construction in the Valley, she added, because developers will once again secure financing for large projects--a sign that the Valley economy has bounced back from the late '80s, when new construction projects ground to a halt.

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