Office Vacancy Rate Drops to 18%; Lowest Level Since ’85

The office vacancy rate in the San Fernando and Conejo valleys fell to 18% in the first quarter, the lowest figure since the third quarter of 1985, according to a study by Grubb & Ellis, a realty firm.

In downtown Los Angeles the office vacancy rate was 14.8% for the same period, and 16.6% in the greater metropolitan area.

Of the Valley areas, Bruce Kusada, a commercial leasing agent with Charles Dunn Co. in Encino, said, “I don’t think the glut is over, but before it was pretty atrocious from the landlord’s perspective. Now in prime areas, Warner Center and Encino, landlords are not willing to make concessions they were six months ago.”

The Valley’s office demand is rising, in part, because building restrictions have slowed the rate of new buildings in the prime Ventura Boulevard commercial area. The 16% vacancy rate in the central area of the Valley was the lowest in the Valley survey.

Benefits Fujita Building

Overall, 2.8 million square feet of office space was vacant, out of 15.9 million square feet surveyed.

One apparent benefactor of the pickup is the Fujita building on Ventura Boulevard near the San Diego Freeway. Owned by Fujita, a large Tokyo construction company, the white building--officially called the Encino Terrace Center--reportedly cost $35 million to build. It opened in January, 1986, with 400,000 square feet of office space. But because of its problems in finding tenants, it has been considered something of a white elephant.

But Seth Dudley, vice president and branch manager with Julien J. Studley realty in Encino, the building’s leasing agent, said about 25% of the space is leased now, and “we expect to get up to 40% with some leases we expect to sign in 30 days. No question the shortage is helping us.”

“That particular building has had leases on the verge of being signed before,” Kusada said, adding that he doubts the Fujita building can be 50% occupied by year-end.

One area that has not felt a pickup is the Conejo Valley’s technology corridor, which extends from Calabasas to Newbury Park. The vacancy rate there was 21%, the highest in the survey. “Agoura Hills and Calabasas is a very soft market,” Kusada said.

There is, however, 2 million square feet of office construction under way in Valley areas, the survey said, compared to 1.4 million a year ago. But brokers said very little of that new space will be available until early next year.

“I think we should be able to absorb that,” Kusada said.