Office Vacancy Rate Decreases to 2-Year Low of 16%

The office vacancy rate in the San Fernando and Conejo valleys dipped to 16% from April to June, the lowest figure in two years, according to a study by Grubb & Ellis Commercial Brokerage Services, a realty firm. During the first quarter, the vacancy rate in the Valley area was 18%.

By comparison, during the second quarter, the office vacancy rate was 15% in downtown Los Angeles, 16% in the greater metropolitan area and 11.9% in West Los Angeles (one of the lowest vacancy rates in the country, Grubb & Ellis reported).

The lower rate in the Valley is good news for developers, who have endured a two-year-long office glut that forced them to give away months of free rent and other concessions to induce tenants to sign a lease.

Rental Climate Changing

That has begun to change. “Now’s the time to buy,” said Howard Zarett, who represents tenants as president of The Zarett Co. in Woodland Hills. “Take the space. The market is only going to tighten.”

Indeed, Grubb & Ellis predicts the Valley vacancy rate will be 13.5% by the end of 1987.

Six months ago, Zarett said, leasing agents were offering six to seven months free rent, office improvements and free parking. Today, he said, concessions are down to three to five months free rent.

“There’s still time for a tenant to negotiate a reasonable deal, but it’s getting tighter,” said Howe Foster, vice president of Grubb & Ellis’ Sherman Oaks office.

Vacancy rates are falling because higher land prices and building restrictions, particularly along Ventura Boulevard, have discouraged developers. “Major developments are going to be fewer and slower in coming than they have in the past,” said Foster.

In fact, some developers are canceling projects. “A lot of construction work is on the drawing boards, but a lot of it looks a lot more iffy than it has in past years,” said Foster. In June, close to 1.8 million square feet were under construction in the Valley, compared with 3.2 million square feet in June a year ago.

The lowest vacancy rate was in the West Valley--Woodland Hills, Tarzana and Canoga Park. But the East Valley--Burbank, Studio City, Universal City and North Hollywood--leased the most space, accounting for half of the 1,092,121 square feet absorbed in the Valley. “The media-entertainment industries are prospering and the East Valley is perfectly situated,” said Foster.

The same cannot be said for the Technology Corridor, which extends from Calabasas to Newbury Park. The vacancy rate there inched up nearly one point from the first quarter to 21.7%, largely because the area is home to the stagnating high-tech industry.

SAN FERNANDO VALLEY OFFICE SPACE

2nd Quarter 2nd Quarter 1st Quarter Vacant Space/ Vacancy Vacancy Area Total Space (sq. ft.) Rate Rate Burbank, Studio City, 709,421/4,216,007 16.8% 18% Universal City, North Hollywood Encino, Van Nuys, 799,799/5,487,829 14.6% 16% Sherman Oaks Woodland Hills, 625,231/4,316,929 14.5% 18% Tarzana, Canoga Park Th. Oaks, Agoura, 463,598/2,132,757 21.7% 21% Westlake Village, Newbury Park