Room for Improvement in Some Office Vacancy Rates

Real estate developer Robert Voit bypassed an opportunity to make a shameless plug for the properties that represent his handiwork.

Over a period of 20 years, Voit, president of the Voit Development Co., worked to create a mini-downtown in a series of office buildings in the area of Woodland Hills known as Warner Center.

And for years, Warner Center seemed, to many, to be the corporate address in the Valley. Companies such as PaineWebber Group and Kaufman & Broad lease space there, and it is home to the corporate headquarters of Foundation Health Systems and 21st Century Insurance.

Today, with the rise of gleaming office towers in the East Valley, most notably in Glendale, the growth of the office market along busy Ventura Boulevard and the growing number of dot-coms seeking low-slung, campus-style space in the burgeoning Conejo Valley, comes the question meant to put the affable Voit on the spot.

So what is the Valley corporate address today, more than two decades after the first Voit properties came on line?

“I think there are three top-notch corporate locales in the Valley today,” said Voit, 60. “Certainly the entertainment industry is stronger in the East Valley, and there are many companies that think the Encino, Sherman Oaks area is the most desirable.”

And then there is Warner Center--”3 million square feet of high- and low-rise structures that took over 20 years of my personal time to bring about.”

While Voit no longer owns the buildings, they still hold his corporate headquarters--and a sizable chunk of his heart. He still uses terms like “us” and “ours” when referring to Warner Center.

“I don’t think any of us is a threat to any of the others,” said the admitted optimist. “It’s a matter of choice.”

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With nearly three dozen buildings, including a major hotel, Warner Center makes up the most visible part of the West Valley office market.

And while local real estate experts say that in general, the West Valley market--and the Valley market as a whole--remain strong, there are some signs that things aren’t ideal from a landlord’s viewpoint. While rents are holding fairly steady, vacancy rates are edging up in five of the Valley’s seven submarkets, including the West Valley, according to figures recently released by Grubb & Ellis Research Services.

Preliminary figures for the second quarter ended June 30 show that the vacancy rate for the Valley region overall, stretching from Glendale on the east to the Ventura County line and including the Santa Clarita Valley to the north, crept up to 11.2%, from 10.6% in the year’s first quarter.

The rate was nudged up by a nearly 40% vacancy rate in the Santa Clarita Valley, where freshly minted space has yet to be absorbed.

Meanwhile, the Glendale market enjoyed a big drop in its vacancy rate--from 16.2% in the first quarter to 11.7%--thanks largely to the stepped-up leasing activity (finally) at the Glendale Plaza.

In the West Valley, some large office tenants pulled out of the market during the quarter, pushing that region’s vacancy rate up to 10.5%, from a first-quarter level of 9.6%, the figures show.

That less-than-1% increase was due largely to empty space in the Warner Corporate Center (owned by Nomura Warner Center Associates) and the 635,000-square-foot Trillium Tower, as well as the completion of phase one of the Calabasas Park Centre, a speculative project that adds 100,000 square feet of Class A (top drawer) office space to the West Valley mix.

But if Voit, who still serves as the managing agent for the Warner Center owners, worries about rising vacancy numbers in the West Valley, it doesn’t show.

“I think things are in balance now,” said Voit, noting that Warner Center still commands much of the insurance/finance trade. “I don’t think there’s a situation where [potential tenants] are starved for space, nor is there a glut of space. And I wouldn’t expect much different in the future.”

Sam Monempour, a senior associate with Grubb & Ellis who tracks the office market in the West Valley and Conejo Valley, thinks the Warner Center properties, even the more seasoned ones, are still competitive “because they provide that high-rise feel, which is still attractive to a lot of professional users.”

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Plus, he noted, West Valley rents, holding steady at about $2.24 per square foot, per month, are still a bargain compared with many locales on the Westside. (He noted that some newer West Valley properties are seeking $2.70 per month, “and they’re not getting it.”)

Still, he predicts that it will be several months, maybe even into next year, before tenants snap up the 300,000-or-so square feet of office space that opened in the West Valley market this quarter. The new vacancies and additions brought the West Valley vacancy level to nearly 860,000 square feet--second only to the ever-depressed central Valley.

“I think that space will sit there for a while,” said Monempour. “The tenant base is there, but I don’t think that space will be taken up at least until the end of the year.”

Monempour also noted that some businesses that might be attracted to the Warner Center area are these days being lured even farther west by economics.

Conejo Valley rents, averaging about $2.25 per square foot, rival those in the region just to the east, he said.

“You’ve got the same rental rates on Class A buildings, but in the Conejo Valley parking is free so you save on parking and you don’t have to pay business taxes,” he said.

“These corporations are looking at ‘where are we going to save money.’ ”

But Voit is convinced that Warner Center’s combination of price, position and prestige is still strong enough to stave off any serious threats from newer digs.

“Management, location and amenities, those are things that go together to create an environment--an anchor--to keep the tenants in place,” said Voit, who started in commercial real estate in 1962 and launched Voit Development Co. in 1971 with seed money from his parents, who owned the sporting goods maker Voit Rubber Co.

“If the rents are reasonable, there’s little incentive to move.”

These days Voit divides his time between operations in the Valley, Orange County and Phoenix.

His company, which helped develop The Plant retail and industrial complex in Panorama City, is preparing to begin work on the Marvin Braude Constituent Services Center in Van Nuys. Voit said the 142,000-square-foot complex should open by the end of 2001.

“We’re hoping to spark some new life in that area with this,” said Voit, describing it as a “city hall for the San Fernando Valley.”

He was recently lauded by the Economic Alliance of the San Fernando Valley for his contributions to the community, both on a business and philanthropic level.

As for the future of Warner Center, which represents the largest project ever undertaken by Voit Development, the complex’s creator and chief booster thinks that “everything is fine.

“Since I’m naturally an optimist,” he said, “I don’t think the threats are all that serious.”

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Once again, the prize for highest vacancy rate in the region went to the Santa Clarita Valley--38.1% in the second quarter, up from 35.1% in the first quarter.

But David Solomon, an associate with CB Richard Ellis who follows the north county market, said high vacancy rates are concentrated in three projects--Valencia Corporate Points (developed by PacTen), Valencia Gateway and Tourney Point.

“The funny thing is that the rest of the market is doing phenomenally well,” said Solomon, referring to the area along Valencia Boulevard and Town Center Drive. “You can’t argue with those numbers, but if you dig a little deeper, into the heart of the market, it’s probably around 1% vacant.”

Regionwide, the tightest market remains Burbank, with a vacancy rate of 7.3%, snug, but still higher than the 5.8% level seen in the first quarter.

Burbank also boasts the highest rents, at $2.83 per square foot.

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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: Vacancy rates for office and industrial space in the San Fernando Valley area for the second quarter ended June 30:

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Source: Grubb & Ellis