Commercial Real Estate Posts Gains in Valley
There was no ice, but the 1999 commercial real estate market in the San Fernando Valley scored its own version of a hat trick.
Scoring goals on three fronts--retail, office and industrial--the commercial real estate market of 1999 was marked by stepped-up construction, increasing rents and (for the most part) decreasing vacancy rates, developers and real estate analysts said.
In the office market, nearly 1.8 million square feet of new space and renovations--valued at $270 million--were announced, begun or completed during the fourth quarter ended Dec. 31, capping off what some described as an exceptional year.
In industrials, rents rose 7% to 58 cents per square foot, while vacancy rates remained in the tightly packed 6% range.
And in one of the most visible byproducts of the booming economy, retailing--leasing, sales and construction--perked up in nearly every corner of the Valley.
“Developers are hot on the Valley,” said J. Richard Leyner, senior vice president of NAI Capital Commercial real estate company in Encino. “There was a period [after the recession] when we had to see if the rest of the country was going to turn around.
“Now,” he said, “the investors are back.”
Retail
New, or improved, retail developments announced, begun or completed during 1999 will bring a ka-ching to neighborhoods throughout the Valley.
Tom Von Der Ahe, president of North Hollywood-based VDA Property Co., was so bullish on the southeast Valley that his company spent $32 million to build a smartly styled shopping center in a retail-deprived stretch of Ventura Boulevard near Vineland Avenue.
Most of the construction work on the 100,000 square-foot center, which houses a 55,000-square-foot Ralph’s, was completed in the fourth quarter. The grocery store--billed as the Millennium Ralphs--opened earlier this month.
There’s only 8,500 square feet left to lease, and Von Der Ahe says he’s not shocked that space is being snapped up so quickly.
“It doesn’t surprise me,” said the son of the founder of the Vons grocery chain. “But I think it surprised some people because that end of Studio City has been dormant for so long.”
Another sleeping beauty that may be coming to life again is a large vacant store in the northwest Valley, on Nordhoff Way in Northridge. It was abandoned after the Best Products retail chain filed for bankruptcy protection in 1996, closing 81 stores nationwide, including all 16 of its Southern California locations.
Developer Doug Beiswenger, president of Newport Beach-based Paragon Realty Enterprises Inc., said his company had been in escrow to acquire the lease on the long-vacant big-box store, but was beat out by Chicago-based Klaff Realty.
“They just bought it about a week ago,” said Beiswenger, who had planned to divide up the space and put in several medium-sized retail tenants. He said he was told that Klaff was in discussions with another big-box tenant.
Klaff officials could not be reached for comment.
In the northeast Valley, Agora Realty & Construction has announced plans to do a major face-lift on the Plaza del Valle, a downtrodden strip mall on Van Nuys Boulevard in Panorama City.
The developers, who paid $10.3 million for the 11-acre site last year, plan to spend $20 million on reconstructive surgery, including the facades, construction of an outdoor promenade with spaces for small businesses and a mariachi bandstand, a food court, landscaping and an open-air produce market.
Remodeling existing retail facilities is a strategy that more developers adopted in 1999, said Leyner, who also is chairman of the United Chambers of Commerce of the San Fernando Valley.
“It’s a question of, if you spend a little money, you will get it back,” said Leyner, pointing to increased customer traffic at centers in Northridge and Lake View Terrace that invested in upgrades.
And with the economy improving and vacancy rates dropping, developers feel more confident about investing in renovations, real estate experts said.
Leyner noted that in some parts of the Valley, particularly high traffic areas along Ventura Boulevard, retail vacancy rates in 1999 dropped to 5%.
“The quality projects are filled, or are filling up tremendously fast,” said Leyner, who represents the Plaza de Oro and Encino Town Center shopping centers. “If you go into Sherman Oaks, there’s nothing available between Kester [Avenue] and Van Nuys [Boulevard].”
Leyner said leasing activity for retail properties was especially strong during 1999, about 25% higher than 1998. And the trend seems to be continuing.
“For whatever reason, January is the hottest January I’ve ever had in 20 years,” he said.
Office
With vacancy rates mostly in single digits and monthly rents for top-quality space coming in at $2.35 per square foot, most real estate experts we talked with said 1999 was especially kind to the Valley-area office market.
“I’d say ’98 and ’99 have been the best years out of the last seven,” said Alexander Rietmann, senior research analyst with Grubb & Ellis. “They’ve been terrific for the office market.”
For the entire San Fernando Valley region, which includes the Santa Clarita and Conejo valleys, the office vacancy rate was 9.9%, about the same as the 9.5% rate seen in the fourth quarter of 1998, according to figures from Grubb & Ellis.
Burbank took the prize for lowest vacancy rate--a snug 3.3%--followed by the broader East Valley with a rate of 8.5%.
“In a word, it’s hot,” said Stacy Vierheilig, senior managing director of Charles Dunn, describing the East Valley market. “The driving force is really [entertainment] production companies and Internet start-ups.
“I feel like I’m getting more calls from Internet companies than production companies,” added Vierheilig. “Five years ago you wouldn’t have had any Internet calls.”
In some areas, however, new construction has pushed rates up substantially. The office vacancy rate was 35.4% in Santa Clarita, 10.6% in the Conejo Valley and 14.9% in Glendale, according to fourth-quarter figures from Grubb & Ellis.
During the year, the Valley added nearly 2 million square feet of additional office space. Even with the space growth, the Valley ended 1999 with a net absorption figure--the amount of space acquired by tenants less the space put back on the market--of 762,453 square feet, according to Grubb & Ellis.
While rents overall increased by only 1%, properties in some hot areas of the East Valley saw jumps of 10% or more.
Burbank, with rents for top-quality space commanding a steep $2.35 cents per square foot, ranks again as the most expensive area of the Valley for office properties.
Industrial
The industrial market saw a slight decline in the level of sales and leasing activity--slipping from 7.99 million square feet in 1998 to 7.62 million this year, according to Grubb & Ellis.
But the region, which also includes much of Ventura County, added 6.4 million square feet of space to the mix and still maintained a vacancy rate of about 6%.
“I’d say for 1999 the market was strong,” said Dan Selleck, president of Selleck Development Group in Westlake Village. “Maybe a little bit stronger in the first half than in the second half, but in general the market was strong.
“There is surging activity, probably from pent-up demand during the recession,” said Selleck, a partner in the redevelopment of the old General Motors assembly plant site in Panorama City. Noting that there is no vacancy in the 750,000 square feet of industrial space in his project, Selleck added, “Now, I think manufacturers are coming back to the Valley.”
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Valley@Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.
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Office, Industrial Space
* Commercial market: The office and industrial market in the San Fernando Valley area for the fourth quarter ended Dec. 31.
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Source: Grubb & Ellis
