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Office space: boom to bust

Posted: February 19, 2010 10:21 p.m.
Updated: February 20, 2010 4:55 a.m.
 
More than a quarter of the Santa Clarita Valley's office space sits vacant, according to a commercial real estate tracker.

The Santa Clarita Valley was booming just three years ago, with office vacancy rates of about 7 percent. Developers even built new office buildings, expecting to have no trouble filling them.

But then the Great Recession hit.

In the fourth quarter of 2009, the Santa Clarita Valley had a 26.7 percent office vacancy rate, the highest in the region, according to a report released Thursday by commercial real estate corporation Colliers International.

The region includes the Santa Clarita Valley, Conejo Valley, West Ventura County and the San Fernando Valley.

Colliers broker Kevin Fenenbock said the Santa Clarita Valley's former philosophy was, "If you build it, they will come."

Vacancies were in the 7 percent range in 2007, which justified the building. Projects were completed just as the economy tanked, he said.
One example he noted was LNR Property Corporation's project on Magic Mountain Road at the I-5, which sits entirely vacant.

"The Santa Clarita Valley benefited in the past several years by the housing boom, with all the ancillary groups: mortgage, title, escrow, home builders," said Fenenbock. "All these people were taking space in the Santa Clarita Valley. Then the mortgage people closed shop or reduced space dramatically. That's where this market got hit most. A lot of small businesses got hurt."

Santa Clarita Valley Chamber of Commerce President Larry Mankin agreed.

"Historically, those spaces would have leased almost immediately or been sold," he said. "It's the state of the economy."

Mankin said the proof is in the building where the chamber's office is located, on Avenue Stanford in the Valencia Industrial Center.

"Six months ago, it was 100 percent occupied," he said. "Now, there are 40,000 square feet in this building, and there are two small users."

Even the arrival of Advanced Bionics, a large biotechnology firm, in the industrial center couldn't turn around a bad year for 2009, Fenenbock said.

Fenenbock doesn't see 2010 improving, either.

"A lot of people are kind of afraid. They don't have any certainty as to where their business is going," Fenenbock said.

If 2010 improves, it will be because a major industry sector like biotech or life sciences emerged in the Santa Clarita Valley, he said.
There is a silver lining, though.

"The benefit to people who have a strong business model and understand their business in the economy we're in is that rates have come down pretty dramatically," Fenenbock said.

While asking rates for office space remain the highest of the six areas in the region, they are lowering, Fenenbock said. Asking rates for office space dropped from $2.72 per square foot in the fourth quarter of 2008 to $2.56 per square foot in the fourth quarter of 2009.

Fenenbock expects the comparably high rental rate will "correct" itself into 2010.

And that's just the asking rate, Fenenbock noted. The actual deals are happening at a lower negotiated rate, he said. And there are more incentives being offered by building owners, such as allowances to make improvements to a leased space, he said.

That's part of the reason for Newhall Land Development's move to the Keller Williams Realty building off Tourney Road in January. Their office space is much more efficient than their former space near the sheriff's station, Newhall Land spokeswoman Marlee Lauffer said in an e-mail.

"This space, about half the size, is more oriented towards a collaborative work environment and is state of the art," she said.

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