Office Vacancies Will Fall, Study Predicts

The office vacancy rate in the San Fernando Valley was 14% in the fourth quarter of last year and will decrease in the 1990s as the cost and scarcity of land force companies to relocate to the Valley, according to a study by the realty firm Grubb & Ellis.

“I think you’re going to see a lot of office space being built away from the traditional corridors due to restrictions,” said Christopher Baer, office properties specialist with Grubb & Ellis. In the past the Valley’s office leasing rates were almost as expensive as those in downtown Los Angeles, he said, but with downtown’s current high rates, “the Valley has again become somewhat of a bargain.”

For the 1990s, the study said, low prices and fewer development restrictions will turn the Valley’s secondary markets into primary ones, particularly along the San Diego Freeway in Van Nuys, Northridge and Mission Hills.

Overall, for 1989 the vacancy rate was 14%, a slight rise from 12% in 1988. Five years ago, the rate for the Valley was 20%, but the rate fell sharply to 13% in 1987.

Last year’s vacancy rate was still one of the lowest rates in the region, according to the study. Baer attributed the rise mostly to construction. About 1.3 million square feet of office space was completed last year and about 2.1 million square feet remains under construction, the study noted.

The vacancy rate for the Los Angeles market, which includes downtown, the Wilshire district, Pasadena, Glendale and the San Gabriel Valley, was 16% last year, according to the study, but is expected to rise considerably in the 1990s as new office space comes on the market. The 1989 rate was 12% for West Los Angeles and 20% for the South Bay.

The largest and most mature office market locally is the central Valley, which includes Encino, Northridge, Sherman Oaks and Van Nuys. It posted a 12% vacancy rate in the fourth quarter. As developers adapt to slow-growth restrictions, the study said, vacancy rates will hold steady.

Meanwhile, the East Valley’s vacancy rate, 8% in the fourth quarter, was the lowest in the Valley and will remain in the single digit range because of the healthy entertainment industry, the study predicted. The East Valley includes Burbank, North Hollywood, Studio City and Universal City.

The study also said the West Valley, which includes Woodland Hills and Tarzana, is emerging as a new commercial zone, even though it posted a 23% vacancy rate in the fourth quarter, the highest in the area. It is the second-largest office market in the area, and with about 1 million square feet in high-rise space under construction, the West Valley will attract companies escaping from tighter markets, the study said.

The technology corridor, which includes Calabasas and Thousand Oaks, posted a 14% vacancy rate. This area’s vacancy rate has been decreasing the last few years, and the study predicted steady growth.