Office Vacancy Rate Expected to Fall by Half : Leasing: As earthquake-displaced companies scramble for new space, agents expect the Valley’s office rate to plunge to 7% by summer.
Leasing agents expect the San Fernando Valley’s office vacancy rate, alreadythe lowest in Los Angeles County, to fall by half to as low as 7% before summer as firms scramble to find temporary quarters to replace offices damaged or destroyed in last month’s earthquake.
The Valley’s office vacancy rate was 14.5% in the fourth quarter and 15.7% in the fourth quarter of 1992, according to Grubb & Ellis Co.
“Although there is a tremendous short-term need for office space in the Valley, we haven’t seen a rise in the cost of rent. But as the dust settles and the vacancy rate goes down in a few months, the cost of the remaining space will start to creep up,” said Seth Dudley, a leasing agent with Julien J. Studley Inc. in Westwood.
Mike Zugsmith, president of Zugsmith-Thind in Burbank, said there is a rush of “tenants looking for temporary office space for periods of as short as one month and as long as two years.”
One of the early winners in the search for new office space is the Conejo Valley, which includes Newbury Park and Thousand Oaks. More than 500,000 square feet of previously vacant office space were rented in the area in the two weeks following the Jan. 17 quake, according to the Conejo Valley Chamber of Commerce.
Zugsmith said the demand for temporary office space caused by the quake will have a short-term impact on the office leasing market in the San Fernando Valley by cutting the vacancy rate by as much as half. He expects the office vacancy rate to hit single digits in the coming weeks.
“But long-term, my sense is that the quake will have little impact overall. Many of these temporary leases will wash out in the next month to two years, when tenants displaced by the earthquake begin moving back to their repaired or rebuilt buildings,” Zugsmith said.
By law, landlords have up to 120 days after the earthquake to locate and identify damage suffered by their office buildings. After that, they have up to two years to repair or reconstruct a building. In many cases, tenants are bound by lease agreements to reoccupy a building after it is repaired or rebuilt.
Craig Stevens, partner in the leasing firm Beitler Commercial Realty, sees a bitter irony in the position that his company finds itself now as a result of the quake. Normally, Beitler would be busy negotiating office leases for prospective tenants, instead of finding one for himself.
Stevens’ company was one of dozens of businesses displaced by the quake. Beitler grossed about $5 million in 1993, and it occupied 10,000 square feet of office space, including the penthouse suite, at the Trust Co. of the West (TCW) office building on Ventura Boulevard. The building and 100,000 square feet of office space, however, were destroyed in the temblor.
Today, Beitler’s 47 employees work out of 3,300 square feet of space at the Atrium Building in Encino, and Stevens said he feels fortunate to have found about one-third the space his business formerly occupied.
“Our business has been seriously impaired. About 90% of our files, not to mention our furniture and office equipment, are still in the TCW building,” Stevens said. “Every other major brokerage firm in the Valley is (operating again) except for us.”
Beitler is still calculating the losses the company incurred in the quake. Stevens, who has been with the company for nine years, said about 95% of all tenants who lease office space do not have earthquake insurance. Beitler is no exception.
“We have insurance to cover everything else, but not for business interruption caused by an earthquake,” he said.
Vivitar Corp. and Packard Bell are two San Fernando Valley companies that moved to the Conejo Valley when their buildings were destroyed in the quake.
Packard Bell had been headquartered in Chatsworth, but when that site was damaged, the company leased 160,000 square feet in Westlake Village for its headquarters and it also leased 176,000 square feet in Camarillo as a distribution center for personal computers. The company, which has about 1,200 employees, said it expected to post $1.2 billion in sales in 1993 and is the fourth-largest maker of IBM-compatible personal computers in the United States.
Dudley called Packard Bell’s move to Westlake Village the “most noteworthy” of the temporary lease transactions resulting from the quake. Before the quake, the company had already announced plans to move its production facilities and administrative office to a new site.
Among the sites then under consideration by Packard Bell officials were Palmdale, Newbury Park, Portland, Ore., and Salt Lake County, Utah. Since the earthquake, however, the company said its plans to relocate to a permanent site were put on hold for a year.
Nearly all of the 100,000 square feet leased by Vivitar in Newbury Park is for office space, said spokesman Ron Leach, who works for a public relations firm that represents Vivitar. The company’s offices, including its headquarters in Chatsworth, were destroyed in the quake.
Vivitar, owned by Gestetner Holdings of London, has 120 employees and markets photographic equipment worldwide.
For Vivitar, the quake occurred at both the best and worst possible times. It struck when sales of photographic equipment are traditionally slow, but also when the industry was preparing for its annual trade show on Feb. 17 in Atlanta, where manufacturers preview their latest models.
“In terms of sales, it couldn’t have come at a better time for us. But we understand that there is no good time for a quake of this magnitude,” said Leach. “However, the two or three weeks before the annual trade show are traditionally slow, because retailers are waiting to see the new product lines (at the trade show) before restocking their shelves.”
Normally, Vivitar executives spend the month before the trade show preparing for the event. But because of the timing of the quake, company officials have spent most of their time salvaging files and office equipment and looking for a new facility to lease.
Last Friday, Vivitar employees were still moving into the new facility in Newbury Park. “It’s still very chaotic. People are trying to figure out where they’re going to sit and where to plug in their phones,” Leach said.
While leasing agents hurry to find office space for businesses displaced by the quake, they are also keeping a nervous eye on Woodland Hills-based 20th Century Industries, which is looking for up to 700,000 square feet of new office space for its headquarters.
The insurance firm announced last month that it would not go through with plans to move to a planned Warner Ridge office site in Woodland Hills next to Pierce College. 20th Century could turn the office market on its head if it decides to move from the Valley.
The day after the earthquake, Neil Ashley, 20th Century’s chief executive, said the company would stay in California and relocate to a site convenient for its employees.
Ashley said he had appointed a committee to find a new site. He added that 20th Century is no longer interested in having an office built from scratch and was probably going to move into an existing facility.
Some leasing agents said 20th Century is interested in moving into the Calabasas Park Center.
“Everyone in the business is waiting to see what 20th Century is going to do. No matter what they do, they’re going to have a big impact on the Valley when they do it,” Zugsmith said.