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Office vacancies rise

Declining industrial rates provide encouragement for analysts

Posted: April 25, 2009 9:58 p.m.
Updated: April 26, 2009 7:00 a.m.

The “For Lease” signs are hard to ignore, as they occupy what seems like almost every street corner in the Santa Clarita Valley where commercial buildings reside.

And while slightly reduced industrial vacancy rates provide some encouragement in the commercial real-estate market, office vacancies remain high and on the rise.

“On the industrial side, we’re still seeing a fair amount of activity,” said Craig Peters, executive vice president of CB Richard Ellis.

“The office market is still struggling from a combination of new product coming on line and at the same time, market demand has pulled back.”

The city’s figures, calculated by CoStar Group, show a 19.1 percent office-vacancy rate in Santa Clarita Valley for January through March. That number, which represents 891,121 square feet of empty space, is a jump of almost 1 percent from fourth-quarter 2008 numbers.

However, the most recent industrial vacancy rate, which stands at 3.6 percent, show, a one-tenth decrease compared to fourth-quarter 2008.

“If you look at the four key clusters in SCV, they have always been aerospace, biotech, entertainment and technology — so those have always been the four main ones (to absorb space),” Peters said. “In addition to that, you’ve got virtually every other industry represented (in Santa Clarita).”

Yair Haimoff, vice president of commercial real estate firm NAI Capital, said the company recently closed three major transactions in the Santa Clarita Valley involving space ranging from 11,500 to 28,000 square feet. NAI recently completed a transaction with Van Nuys Harley Davidson for a 24,000 square-foot space in the Centre Pointe Parkway business park in December, Haimoff said.   

“These are pretty large transactions for today,” Haimoff said. “We’re getting busier. Landlords are more aggressive to get deals done.” While office lease rates are soaring, brokers say landlords are starting to catch on and meet tenants at more reasonable levels.

Colliers International’s numbers show a 27.9 percent office-vacancy rate for first quarter. That’s a 1.5 percent increase from December’s rate, which was the highest rate in 10 years. Kevin Fenenbock, vice president  of Colliers, said the company tracks buildings 30,000 feet in size or greater, multi-tenant use, and  nonmedical space.

“There (are) a lot of landlords out there who are still adjusting their rents to meet demand,” Fenenbock said.

Short-term leases — leases of one to two years versus three to five — are becoming more of a trend, Fenenbock said.

“Tenants are just kind of determining their company’s future in this environment we’re in,” he said.  

“Both landlords and tenants are working together. Landlords are starting to understand (that) tenants need some flexibility in terms of leases right now. I think more owners are understanding where they have to be in order to make deals in this environment.”
Combs + Miguel Architecture Inc. moved into a new office space on Avenue Tibbitts in March.

“We did get a favorable lease agreement on the cost,” said Jim Combs, president of Combs + Miguel. “At that time, when we signed the lease, it was beginning to be obvious the office market is pretty bad.”

Fenenbock said the vacancies incurred in the office market have been a result of large group downsizings – primarily the homebuilders, and mortgage, title and escrow companies.

“Those groups are related to the homebuilders and dependant on them, those are the groups we’ve seen the most decrease in space,” he said. “A lot of companies are still strong and viable, however they down-sized, or incurred significant layoffs to balance their business. That’s how we reached the vacancy levels we have.”

Despite a growing number of eager landlords and better deals, a Colliers special market report predicts that office-vacancy rates will rise above 30 percent by year-end.

As rents continue to fall and leasing activity remains low, many tenants and landlords are merely looking to survive 2009 and move forward,  the report said.



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