Valley Brokers Predict ’86 Will Be Good Year : Office Vacancies Expected to Decline as Area Continues to Attract Additional Enterprises
Despite office vacancy rates of 20% and more and a plentiful supply of industrial buildings, non-residential real estate brokers in the San Fernando Valley and Ventura County are optimistic about 1986.
Some comments from brokers, developers and others, to put the situation in perspective:
--”We had our best year ever last year, with $76 million in gross volume, up almost 9% from 1984, and a 54% increase in net profit,” said Mike Zugsmith of Zugsmith & Associates Inc., a Studio City industrial/commercial brokerage concern.
--The current 19% office vacancy rate should drop to between 15% and 17% as new construction in the San Fernando Valley halves from 3.8 million square feet in 1985 to 1.9 million square feet this year, according to James C. Nolan, office properties specialist at Grubb & Ellis Co., a major brokerage firm.
--A 10-year lease valued in excess of $23 million--one of the largest ever in the San Fernando Valley--was executed Dec. 24 for all 228,000 square feet of the Chatsworth Tech Center by Symbolics Inc. for its Western operations headquarters. The lease was an excellent Christmas present for Terra Development Co., Santa Monica, developers of the 11.5-acre project at Canoga Avenue and Plummer Street in Chatsworth.
Late-Summer Relocation
Cushman & Wakefield represented both parties in the transaction. A late-summer occupancy is scheduled for the relocation from present quarters at 9655 Irondale Ave., Chatsworth, according to Minori Tonai, vice president, Western operations for the Cambridge,Mass.-based symbolic processing firm.
To John D. Montanaro, partner and chief financial officer of Terra Development, the transaction is an important indicator that Chatsworth retains its title of “Silicon Valley South.”
--To the west, in the Calabasas area of Los Angeles County, high-tech and office activity is burgeoning in projects like Calabasas Tech Center near the intersection of Agoura and Las Virgenes roads. So far, four leases with a total value of more than $34.7 million have been negotiated by Coldwell Banker Commercial Real Estate Services in the 20-acre, seven-building project.
Major tenants include First Interstate Trust Co., with 70,000 square feet, with Coldwell Banker representing First Interstate; Protocol Computers, with 24,500 square feet, with Coldwell Banker representing Protocol, and Saki Magnetics, with 18,600 square feet, with Merrill Lynch Realty representing Saki.
Opening Branch Offices
Completion of the $26-million, 260,000-square-foot project is expected in July, according to Reed Tetrick of Jaric Developers & Contractors, Los Angeles, developer in joint venture with Ahmanson Commercial Development Co.
Responding to the demand in the western end of the San Fernando Valley and the eastern sector of Ventura County, architects and construction concerns are beginning to open branch offices in the area, usually in Thousand Oaks or Westlake Village.
Typical of the former is Barasch Architects & Associates Inc., based in Pasadena, with a branch office that opened last May near the Thousand Oaks city hall. The branch office has six employees, according to Stephen B. Barasch, the firm’s president.
About the same time last year, Oltmans Construction Co., Whittier, opened a branch office in Westlake Village. Robert Larson, manager of the office, believes that it is much easier to supervise the many construction projects under way in the Ventura Freeway corridor with an office only minutes away than one clear across the vast Los Angeles basin.
Servicing Developments
Larson added that Oltmans, one of the top five general contractors in the Southland and one of the top 200 in the nation, opened the new office to service developments by Astral Properties, Thousand Oaks. Today, in addition to Astral, Oltmans builds for major Southland developers such as the Hewson Co., Cabot, Cabot & Forbes, the Sammis Co. and Meister Development Group.
Among the most recent Oltmans-built projects are Simi Freeway Commerce Center, a 50-acre development by Hewson at Easy Street and Ward Avenue, Simi Valley, and Camarillo Commerce Center, a 48-acre development north of the Ventura Freeway at Flynn and Adolfo roads in Camarillo.
The Simi project is a joint venture with Glenfed Realty Inc., while the Camarillo project is a joint venture with Hillman Properties West Inc.
James Nolan of Grubb & Ellis is somewhat less optimistic about the potential of the Conejo Valley, which he believes will tighten “in time” due to a limited supply of land parcels zoned for pure office development. Too, development of new space will decrease until the existing supply of office and R&D; space is absorbed.
Major Beneficiaries
Western Ventura County, from Camarillo to Oxnard, Port Hueneme and Ventura, is attracting industrial as well as office users from coastal areas in Los Angeles because of lower land costs, less congestion and affordable (by Westside standards, at least) housing.
So far, Camarillo and Westlake Village have been the major beneficiaries of this exodus from the Westside, but most observers expect other communities to benefit from what is a strong trend.
Moving east, Nolan said that an important factor impacting future office development in the San Fernando Valley is a moratorium on Ventura Boulevard from Universal City to Woodland Hills that limits buildings to no more than three stories.
Nearly half the office space in the Valley is along the Ventura Boulevard corridor, Nolan added.
Effects of Moratorium
Land prices have dropped in the wake of the moratorium, he said, adding, “Last year, we could get up to $100 per square foot in prime locations, but the moratorium has cut buildable space to about half of what it was.”
Steve Weiss, land and investment specialist at Zugsmith & Associates, believes land values in the San Fernando Valley will level out in response to the Ventura Boulevard moratorium and changes that will force developers to provide more parking.
His colleague at Zugsmith, retail specialist Dick Carter, believes that parking is a major problem in Los Angeles, including the Valley, as mini-malls proliferate and as developers attempt to combine retail and office uses. He is decidedly unhappy about the visual blight of huge billboards and the lack of sign ordinances in most parts of the city.
Carter sees a continuation of the trend to renovate existing shopping centers, a trend that goes back at least as far as the renovation of the Panorama Mall half a dozen years ago.
Santa Clarita Centers
“Topanga Plaza has just been renovated, and it’s ready for another one,” Carter said of a major regional shopping mall in Canoga Park. “The existing tenants don’t match the Nordstrom that was added in the just-completed renovation. I’d like to see a Nordstrom department store added to Northridge Fashion Center to more accurately mirror the income and taste levels of the residents of the area,” he added.
In fast-growing areas like the Santa Clarita Valley--Newhall, Valencia, Saugus and Canyon Country--shopping centers are being expanded to meet the demand from new residents. The $3-million expansion and remodeling project of Canyon Center, scheduled for completion this year, will result in about 250,000 square feet of gross leasable space in the center, according to Ira Forest of Forest & Co., Sherman Oaks, owner/developer.
Designed by Barasch Architects & Associates, Pasadena, the project adds 50,000 square feet of space, including a food service center, an automotive center and new buildings at each end of the open mall on Soledad Canyon Road.
“Canyon Center was the original shopping center in this valley,” Forest said. “It is still the largest and now it is the newest.”
Readying for Occupancy
Nolan of Grubb & Ellis sees continued growth in Warner Center in Woodland Hills, one of the “hottest areas of office development in Southern California, where as much as 1.5 million square feet” of office space is now on the drawing boards.
The $60-million, 17-story first phase of Trillium should be ready for occupancy by midyear, according to Norman J. Kravetz, co-general partner of the joint-venture developer, Kravetz/Terheggen Partners and Fischbach Woodland Hills Properties Inc.
The eight-acre, $165-million complex at 6320 Canoga Ave., in the Warner Center project in Woodland Hills, will contain two high-rise office towers, restaurant, health club and stadium tennis court, a retail promenade and a six-story parking structure by Century Parking Inc. A hotel, currently in the approval process, is planned for the site, with U. S. Hotel Properties the developer.
Designed by the Landau Partnership, the office tower contains 300,000 square feet of space. The second tower will be identical, Kravetz said. The name of the development comes from its three planned phases “and is reminiscent of the three-petaled trillium flower,” Kravetz said.
Absorbed Office Space
The leasing agent is the Faulkner Co.
Tim Demshki of the Sherman Oaks office of Coldwell Banker Commercial Real Estate Services, points to 1.7 million square feet of office space absorbed last year, with a similar amount expected in 1986.
In specific areas of the Valley, he believes that the building moratorium in Sherman Oaks/Encino will decrease vacancy rates, perhaps making 1986 “the last chance for tenants to get major concessions” from landlords until the moratorium is lifted.
Two major buildings that have just been completed--the First Financial Plaza at Sepulveda and Ventura boulevards in Sherman Oaks, and the Encino Terrace Center (commonly called the Fujita building) several miles to the west in Encino--offer 650,000 square feet of space “and should lease in 1986,” Demshki said.
Buildings Recently Completed
Industry sources report that First Financial Plaza is leasing quickly, far more quickly than the six-story, 385,000-square-foot Fujita project with its huge floor areas ranging from 44,000 to 78,000 square feet. So far, the only tenant in the building is Security Pacific Bank, with 10,000 square feet on the first floor, according to Demshki.
In the Universal City/Burbank media district area, more than 1 million square feet of office space is available in four buildings that have been recently completed, Demshki said. This supply of space should make the area very attractive in price and building quality for entertainment-related firms to lease this year, he added.
He calculated that of 256 existing office buildings in the San Fernando Valley, Calabasas, the Conejo Valley, Burbank, Glendale and Valencia, there is a total of 16,947,934 square feet of space. Of this total, 3,446,110 or 20.3% is vacant.
Industrial Buildings
Buildings under construction total 18, with 2,705,994 square feet, he said. Of this total, 994,186 or 36.7% is committed.
Coldwell Banker industrial specialist Nick Gregg counted 259 existing industrial buildings with a total of 8,211,168 square feet in the same area. Thirty-nine buildings, with a total of 2,876,990 square feet, are under construction.
From March 4, 1985 through March 5, 1986, 1,953,936 square feet of space were sold and 6,111,568 square feet leased, Gregg said.
