Office Leasing Picks Up; Vacancy Rate Dips to 14%

The office vacancy rate in the San Fernando and Conejo valleys fell to a 2 1/2-year low of 14.3% during the third quarter ending in September, according to a study by Grubb & Ellis Commercial Brokerage Services, a realty firm.

During the second quarter of this year, the office vacancy rate was 16%.

Grubb & Ellis also reported that more space was leased in the first nine months of this year than in all of 1986.

In the third quarter, the office vacancy rate was 13.3% in downtown Los Angeles and 14.6% in the metropolitan area.

As recently as spring, leasing agents still were unsure whether the two-year-long office glut would continue. Since then, the vacancy rate has steadily declined from 18% in the first quarter.

Glut Believed Near End

Leasing agents believe the glut is just about over. “Tenants are seeing that the vacancy rate is clearly declining,” said Howe Foster, vice president of Grubb & Ellis’ Sherman Oaks office. “Anyone wanting to take advantage of concessions knows they’d better do it fairly quickly.”

In the last two years, landlords routinely gave away a year’s rent to tenants willing to sign a five-year lease, according to Foster. Today, he said, a concession package rarely includes more than six months’ rent.

The lower vacancy rates thus far in 1987 are, in part, attributable to a reluctance among developers to invest in new buildings because of higher land prices and newer building restrictions along Ventura Boulevard, long a prime office area.

With each succeeding quarter, Foster said, fewer buildings are opening, but demand is holding steady or increasing.

Leasing agents point out that the rate of absorption--the amount of space leased in a quarter--is running fairly close to the amount of space under construction. From January through September, Valley businesses leased 1.8 million square feet, and 2.2 million square feet are under construction.

Little Impact From Crash

Much of the recent demand has come from company expansions, not relocations. “There isn’t much of an influx of companies coming from Wilshire or downtown L.A. The companies out here are growing rapidly and they need additional space,” said John Battle, general manager of Beitler Commercial Realty Services in Sherman Oaks.

The Oct. 19 stock crash, meanwhile, seems to have had little effect on office demand. “None of our clients has gotten cold feet,” said Battle.

During the third quarter, the central Valley--Encino, Van Nuys and Sherman Oaks--had the lowest vacancy rate, at 12%. Several Encino buildings, including the Encino Executive Center and Encino Financial Center, accounted for a good part of the growth, Grubb & Ellis said.

In comparison, the Technology Corridor, which extends from Calabasas to Newbury Park, once again had the highest vacancy rate, at 19%. The area’s computer firms have endured a slowdown, while the area remains too remote for many companies to establish offices. But, Foster said, the area’s cheaper land continues to lure developers who are convinced it will emerge as a lucrative rental market.

But the rest of the area’s office market looks healthy. Battle said the overall Valley vacancy rate “could very well drop to somewhere in the 12% range.”

SAN FERNANDO VALLEY OFFICE SPACE

3rd Qtr. Vacant Space/ 3rd Qtr. 2nd Qtr. Area Total Space (sq.ft.) Vacancy Rate Vacancy Rate Burbank, Studio City, 658,451/4,315,007 15% 16.8% Universal City, North Hollywood Encino, Van Nuys, 703,872/5,661,824 12% 14.6% Sherman Oaks Woodland Hills, 612,544/4,443,929 14% 14.5% Tarzana, Canoga Park Thousand Oaks, 396,605/2,132,757 19% 21.7% Agoura,Westlake Village, Newbury Park, Calabasas