New Projects Push Office Vacancy Rate to 15%

The San Fernando Valley office vacancy rate climbed to 15% in the first quarter of 1989, the highest it has been in nearly two years, according to a survey by the realty firm Grubb & Ellis.

In the fourth quarter of last year, the vacancy rate fell to 12%, matching the five-year low. Howe S. Foster, senior vice president at Grubb & Ellis, attributed most the first quarter’s increase “to the half-million square feet of new office space that came on line in the East Valley” market. The East Valley, dominated by the entertainment industry, covers Burbank, North Hollywood, Studio City and Universal City.

“Anytime you have that much new space hit the market at one time in one quarter, you can expect the vacancy rate to climb temporarily,” Foster said.

By comparison, in the first quarter the office vacancy rate was 14% in downtown Los Angeles, and 13% in both West Los Angeles and Ventura County.

The Valley survey covers the area from Newbury Park to Burbank. In the first quarter, there was 2.8 million square feet of vacant office space from an inventory of nearly 18.9 million square feet.

The latest figures, however temporary, mark a distinct change in the office market. Since mid-1986, the Valley office market had been tightening, with the vacancy rate dropping from 21% vacancy rate to as low as 12%. Real estate agents have said the tightening market has meant landlords no longer have to make as many concessions to get tenants to sign long-term leases. In part, the tightening market has been because of building restrictions along Ventura Boulevard and a budding slow-growth movement urged by residents.

In the latest survey, the Central Valley market, which includes Encino, Sherman Oaks, Van Nuys and Northridge, posted the lowest vacancy rate at 13%, while the East Valley area had the highest vacancy rate at 16.1%

The so-called Technology Corridor, which includes Calabasas and Thousand Oaks, usually posts the highest vacancy rate because of its more remote location. But builders there have been convinced that lower rents along the Ventura Freeway will eventually attract new clients. In the first quarter, the vacancy rate in the Technology Corridor was 16%, down from 17.5% at the end of last year.