Vacancy Rate in the Valley at 12% : Office Rentals Changing to Landlord’s Market

The vacancy rate for office space in the San Fernando Valley region remained at 12% at the end of the second quarter, unchanged from the first quarter but down from 16% a year ago, according to a study by the real estate firm of Grubb & Ellis.

The rate has been declining since 1986, when vacancies soared to 21%.

“The market is slowly changing from a tenant’s market to a landlord’s market,” said John Battle, executive vice president of Beitler Commercial Realty Services.

Developers are offering fewer months of free rent and other concessions, commercial leasing agents in the Valley said.

The market in the Valley was slightly softer than in West Los Angeles, which had a vacancy rate of 11%, said Grubb & Ellis. The rate was 12.6% downtown and 14.9% for all of metropolitan Los Angeles.

The firm’s quarterly survey found 2 million square feet of vacant office space in the Valley region, out of a total supply of 17.2 million square feet. In addition, the area has 3.4 million square feet of space under construction, 864,000 of which has been pre-leased.

Construction Declines

The survey covered 240 privately owned office buildings, each with more than one tenant and more than 20,000 square feet of space.

“It’s a really healthy market right now,” said Howe Foster, vice president and district manager of the Grubb & Ellis Sherman Oaks office.

Leasing agents attribute the low vacancy rate to a decline in construction during the past year. Stringent local government controls on development, higher land costs and strong anti-development sentiment from homeowners groups have slowed development, they said. Meanwhile, demand for office space has not declined.

“With all the homeowners getting together and having a lot of input on development, they’ve slowed it down considerably,” said Bruce Kusada, senior sales consultant at Charles Dunn Co. “Developers are no longer buying the land as quickly as they did three or five years ago. And it’s taking longer to get projects off the ground.”

As a result, leasing agents said, tenants have to look harder for space.

“There’s just not quite as much to choose from,” Battle said. “It’s much tougher for tenants to get a good deal.”

For instance, he said, last year a tenant might have gotten eight or 10 months free rent on a five-year lease, whereas today the same tenant might get only four to six months free. “The numbers certainly have changed. Landlords are being a lot more careful about what they’re willing to give away.”

The West Valley--defined by Grubb & Ellis as Woodland Hills, Tarzana and Canoga Park--had the lowest percentage of unleased office space, and the largest share of space under construction. The area’s vacancy rate was 9%, down from 14.5% a year ago.

11% in East Valley

The East Valley--Burbank, Studio City, Universal City and North Hollywood--had a rate of 11%, down from 16.8% last year. The Central Valley--Encino, Van Nuys, Sherman Oaks--had a rate of 13%, down from 14.6% last year.

The Technology Corridor, a strip with many electronics-oriented firms extending from Calabasas to Newbury Park, had a 17% vacancy rate, down from 21.7% last year.