Warner Center Copes With a High Vacancy Rate : Offices: The large supply of empty space is due partly to a push by developers to get their projects on board before local restrictions make future projects more difficult.

Marvin Gayle was a die-hard Westside veteran, having kept offices for more than 20 years in Century City and in Beverly Hills for a decade before that. So when the business litigation and personal injury attorney was asked by his young partner and secretary to consider moving to the Warner Center in Woodland Hills to be closer to where they all live, he flatly refused.

“I just wasn’t interested,” Gayle said. But not wanting to appear inflexible, he agreed to look at a new building owned by the Voit Cos. “I came out here, looked at it,” Gayle said, “and told them we were moving.”

That was in September and now, Gayle said, he commutes from his Encino residence in less than 15 minutes. He has a view of the Santa Susana Mountains. His Valley-based clients like his new location and his Westside clients haven’t shunned him. “Once they get here, they’re impressed,” he said.

About two decades after the Warner Center’s first building rose out of corn fields, the 1,100-acre master-planned development--built on the former ranch of late Warner Bros. President Harry Warner--is the Valley’s answer to Century City and is home to about 14 million square feet of commercial space.

But like much of the office market in Southern California, Warner Center has felt the impact of the nationwide commercial real estate slump and is saddled with a large supply of empty space. Gayle doesn’t have many neighbors in the so-called Warner Center VI, the 20-story office tower that opened in January at a construction cost of about $100 million. The building is only about 35% leased.

Indeed, the average vacancy rate for all of Warner Center is about 20%, which is much higher than the 14% overall vacancy rate for the Valley in the third quarter, according to a Grubb & Ellis Commercial Real Estate Services study. And while some local office markets, such as Westwood, had vacancy rates above 20%, the rate in downtown Los Angeles actually fell during the quarter to 13%--a 17-month low.

Nonetheless, Warner Center has become a prestigious business address within the Valley, and it has some hidden strengths for the future. The high vacancy rate in Warner Center is partly due to the push by developers to get their projects on board before local growth restrictions make future projects more difficult.

Many developers, including big national companies such as JMB Realty, Trizec Properties and LaSalle Partners, have plans to build large projects in Warner Center. JMB, for instance, plans to develop 22 acres surrounding the Blue Cross of California headquarters on Oxnard Street, which it purchased two years ago.

But after Warner Center III, a 26-story office tower developed by Voit, is finished early next year, there will probably be a few years in which no construction takes place in Warner Center.

Nonetheless, developers in Warner Center with buildings to fill concede that they must take a long-term view of profits, and that means offering prospective tenants costly concessions such as several months free rent and free parking to entice them to move in.

“It takes you a little longer to make a decent return on investment in today’s marketplace,” said Richard B. Shapiro, vice president of Elins Development, which recently opened a 60,000-square-foot office building in Warner Center. It could take three years after construction starts for a developer to reach an operating profit, Shapiro said.

A few new buildings account for nearly all the vacant space in Warner Center, including the Warner Center VI project, which Voit--Warner Center’s biggest landlord with about 3 million square feet of office space--opened with partner Copley Real Estate Advisors of Boston. Other buildings nearby that opened recently include a two-building office complex by Trammell Crow, and the Elins building.

Warner Center is bounded by Vanowen Street on the north, Topanga Canyon Boulevard on the west, De Soto Avenue on the east and the Ventura Freeway on the south.

Derek Graham, an office-leasing specialist at Coldwell Banker Real Estate Services, said tenants continue to be attracted by Warner Center’s rental rates, which at $1.80 to $2.50 a square foot are lower than downtown Los Angeles and Westside rates. Warner Center rents are slightly higher than rents on Ventura Boulevard in Encino and Sherman Oaks--the Valley’s other major business area--but local growth limits have also created a shortage of space along the Ventura corridor, which has helped funnel tenants west to Warner Center.

Shapiro of Elins Development said business people are also increasingly viewing Warner Center as “a viable place” to locate because buildings are newer and have more amenities than in other areas of Los Angeles, and a diversified labor pool lives nearby.

Also, with little additional office space likely to be added to Warner Center for at least a few years after Voit’s Warner Center III is opened next year, “I think we’re slowly creeping into a landlord’s market,” said Sheryl L. Mazirow, a senior marketing consultant at Grubb & Ellis in Sherman Oaks.

It could stay a landlord’s market if Warner Center developers keep facing more bureaucratic snags before projects can be approved. The Warner Center Specific Plan, the master plan for the area, is now being updated and many developers have put projects on hold until the new plan is adopted by the Los Angeles Planning Department, which isn’t expected until late next year. Development in Warner Center and elsewhere has also been slowed because of the savings and loan crisis, which has made it harder to obtain financing for real estate projects.

In the meantime, Warner Center has begun attracting a broader range of tenants, said William Lassetter, marketing director for Voit’s Warner Center properties. Until recently, Warner Center offices were occupied almost exclusively by insurance and health-care companies, such as Transamerica Insurance, Cigna Health Plans and Chubb Group. Within the past year or so, however, other types of businesses have started to move in, including law firms, software companies and more offbeat businesses such as Malibu Grand Prix, an operator of amusement parks that feature amateur auto racing.

Warner Center also recently landed its first entertainment company tenant, movie theater and cable TV operator United Artists Communications, which last month signed a lease for 14,000 square feet in Voit’s Warner Plaza VI.

But while new tenants are moving in, there’s also the possibility that as space grows tighter, old tenants will move out. Just last week, Health Net, a health maintenance organization that has been in Warner Center since 1984, announced plans to move to Thousand Oaks by 1994. The company, which leases more than 100,000 square feet from Voit, said the decision was motivated by its desire to own its own building to accommodate its rapidly expanding work force.