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Tech Troubles Don't Faze Valley Office Market

October 10, 2000|Karen Robinson

The dot.com downturn--that morning-after hangover following a long night of Internet intoxication--so far has not seemed to hurt the San Fernando Valley's office real estate market, which saw its vacancy rate dip to 10.4% from 11% in the recently ended third quarter.

Brokers say that in fact, demand for office space by high-tech companies has diminished. But health care and financial companies have picked up the slack.

"We're traditionally more the financial services market," said David Solomon, a senior associate with the CB Richard Ellis office in Sherman Oaks. "We never had the penetration of dot.coms, so as it's backed off, naturally, we're not seeing a significant impact."

But Solomon and other brokers concede that technology-related companies appear to be scaling back expansion plans.

"They're not downsizing," Solomon said. "They're just not aggressively growing the way they would have."

Brian Hennessey, a Grubb & Ellis vice president who tracks the East Valley market, recalls that during the first and second quarters of the year, "Thirty to 40% of the tenants we were showing were tech, depending on the building."

In the third quarter, he said, it was more like 10% to 20%.

But the flagging fortunes of the tech trade have not translated into harder times for local landlords, brokers said.

"There's been a concern that the dot.com companies might cause some problem, but they have not," said Stacy Vierheilig, an office broker with the Charles Dunn Co. who tracks the market in the East Valley. "I've had a couple of small things [deals] go out, but that's it."

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In the tech-heavy West Valley, the vacancy rate remained virtually unchanged in the third quarter at 10.4%, with monthly rents increasing to $2.31 per square foot, up from $2.24 in the second quarter, according to Grubb & Ellis.

CB Richard Ellis, using a different database, reported that the vacancy level in West Hills alone dropped by 143,000 square feet, nearly all of that due to a long-term lease announced in July at the West Hills Corporate Village.

The Village, a 560,000-square-foot office park at the site of a former Hughes Aircraft Co. research and development facility, reached 100% occupancy when Countrywide Home Loans signed a 10-year lease for 140,000 square feet.

In the Conejo Valley, where nearly a million square feet of office space is under construction, the vacancy rate dipped to 6.3%, from 8.2% in the previous quarter, while rents increased slightly to $2.29 per month, from the second-quarter rate of $2.25, according to Grubb & Ellis.

The tightest submarket within the Valley region remains Burbank, which saw its vacancy rate drop from 5.5% in the second quarter down to a skinny 2.8%. It's also the Valley locale with the highest office rents, with rates remaining at $2.83 per month per square foot in the third quarter, according to Grubb & Ellis.

In fact, Hennessey wonders if the Burbank market is getting too tight for its own good.

"It's not good for brokers," he said. "We've got no place to take people. And it's not good for tenants that are looking for larger blocks of space. This severely limits their choices."

The nearby East Valley, which includes North Hollywood, Studio City, Universal City and the Cahuenga Pass area, saw the largest vacancy rate jump--moving from 7.7% in the second quarter to 11.8% in the third.

Brokers said that was due largely to more than 70,000 square feet of space coming onto the market at the Washington Mutual Bank building on Laurel Canyon Boulevard in North Hollywood.

"That's just typical movement, where the tenant needs more space," Hennessey said.

The region with the most available space remains the Santa Clarita Valley, which saw its vacancy rate dip in the third quarter to 33.2% from 38.1% in the previous quarter. The submarket has the highest vacancy in Los Angeles County--higher than even the 22% rate in downtown Los Angeles.

Santa Clarita saw the largest drop in rents: to $1.86 in the third quarter from $2.20, a loss of 15%.

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Glendale, which for months has been beset with a higher-than-average vacancy rate, saw its rate increase further from 11.7% in the second quarter to 13.6% in the third. Rents remained almost unchanged at $2.10 per square foot.

In the central San Fernando Valley, the vacancy rate dropped to 9.2% in the third quarter, from 11.5% in the second. Rents remained at $1.96 per square foot.

The industrial market saw its strongest quarter since the second quarter of 1998. The vacancy rate for the region, which includes the Conejo and Santa Clarita valleys, dipped to 3.9%, according to a Grubb & Ellis report.

The snuggest sectors were the east and central valley areas, with vacancy rates of 3.2% and 3.6% respectively.

The vacancy rate for the Conejo Valley, which includes Agoura Hills, Calabasas and parts of eastern Ventura County, remained highest in the region, at 5.4%. That's down more than 4 percentage points from the second-quarter figure.

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Valley@Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Office, Industrial Space

Commercial market: Vacancy rates for office and industrial space in the San Fernando Valley area for the third quarter ended Sept. 30:

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Source: Grubb & Ellis

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