San Fernando Valley market stays tight despite slowdown in activity.

San Fernando Valley market stays tight despite slowdown in activity

The San Fernando Valley real estate market has slowed down a bit since its heyday but it is still one of the tightest market's in the Southland. Growth limitations, a credit crunch and the brisk expansion of entertainment companies all have contributed to low vacancy rates.

The San Fernando Valley contains 6 million square feet of vacant office space, which is considerably less than the Westside's 12 million and downtown Los Angeles's 9.2 million, both considered overbuilt by many.

One effort to control growth in the valley is the Ventura Boulevard Specific Plan, which went into effect in February. It is designed to control traffic and development along Ventura Boulevard, from Woodland Hills to Studio City.

One part of the plan limits building height along the corridor to two stories in most segments. That makes building along the boulevard not worthwhile for developers, said attorney John Bowman of the Sherman Oaks law firm Reznik & Reznik. Before 1985 developers could build three square feet of office space for every square foot of land. Now they can build an average of one square foot of space for every foot of land.

Another provision requires landlords and tenants to submit permits for tenant improvements, which will make tenants think twice before they lease space, he added. These proposals, in addition to others requiring tenants to pay fees based on the traffic they generate, took five years to be approved.

Bowman said he expects these laws will limit construction on the strip while pushing development to the Sepulveda Corridor and Van Nuys Boulevard.

But Warner Center, located north of Ventura Boulevard in Woodland Hills, is not limited by the plan. With tenants the likes of Litton Industries, The Daily News and IBM, it still has close to 1 million square feet of vacant office space and 610,000 square feet currently under construction.

Attracting lower profile tenants with lease rates as low as $20 a square foot yearly, the Conejo Valley was the only San Fernando Valley submarket where more square footage was leased in 1990 than in 1989, according to a study done by Julien J. Studley Inc. of Los Angeles. Flocking to rent space in the area's new buildings, were high-tech and insurance companies, the report noted.

Another submarket in high demand, especially for highrises, is Burbank, with vacancy rates as low as three percent. One project expected to reduce the shortage in the Media District is Burbank City Center, a mixed-use project with a projected 1 million square feet of Class A office space. Homart Development Co. expects the project to break ground later this year, said broker Frank Franzese of Cushman & Wakefield of California.

NBC Plaza, another project recently approved, will contain 600,000 square feet of office space, 100,000 square feet of which will be occupied by NBC itself.

Unlike Burbank, the adjacent city of Glendale is somewhat overbuilt with vacancy rates estimated at 14 percent. Two projects expected to add to the glut are Glendale City Center, slated for completion in August 1991 with 340,000 square feet of office space, and 500 North Central, containing 114,000 square feet. Neither are pre-leased.

Burbank, Glendale and Thousand Oaks rank as the valley's busiest areas in terms of building sales, according to The Hanes Co., a Woodland Hills-based investment brokerage firm. The sales of 47 buildings in the San Fernando Valley were reported in the third quarter of 1990, at an average price of $3.1 million, an average "cap" rate (the rate of return on a hypothetical all-cash buy) of 8.87 percent and an average cost per square foot of $187.23.

The valley's retail market is also slow. However, the drop in activity is more dramatic in this market as developers are losing their once successful projects to the lenders. For example, La Reina Shopping Center was recently taken back by the bank, just as the Center at Coldwater was lost to Security Pacific Bank.

The two-story La Reina, which boomed in the '80s, prompted other developers to build three- and four-story projects. But with the retail market in the slump "retailers are not willing to go on top (of building with more than one story)," said Mark Sullivan at Studley.

And since developers cannot fill up their vacancies, banks are taking back the projects. Hence, he said, values that had sky-rocketed a few years ago are coming down to reality.

The prices for space in strip malls anchored by major retailers ranges from $125 a square foot to $225 a square foot, Sullivan said. Unanchored retail space ranges from $75 to $150 a square foot.

The glut of retail space will continue with the completion of other projects in the coming years, said Michael Lushing of Coldwell Banker. In Studio City the Laurel Promenade will finish construction once additional financing is in place. The two-story project, 50 percent pre-leased, will end up with 53,000 of retail space.

Encino Place, a three-story project with 90,000 square feet, has leased all office space on the third floor and expects to lease the remaining 60,000 square feet to retail tenants.

Encino Courtyard also is 15 percent leased. The 87,500 square feet project, owned by Security Pacific Bank, is currently under construction. Oakridge Plaza, one of the few 80-percent-leased retail projects in the area, has a total of 42,000 square feet on Ventura Blvd. and Beverly Glen.

Vacancy rates in the industrial market have risen from 9.8 to 11.4 percent and are expected to escalate due to the soft defense industry market, according to a Grubb & Ellis report. Construction starts have dropped by 50 percent.

Most San Fernando Valley industrial spaces are occupied by small and mid-size users and 90 percent of leasing activity last year was in spaces under 75,000 square feet, while 34 percent of users occupied space from 10,000 to 25,000 square feet. The market has shifted from heavy manufacturing to light manufacturing, assembly and service usage, the report noted.

Cap rates for standard spaces range from 8.4 to 9.3 percent, compared to research and development/high tech rates which range from 9.8 to 12 percent. Sales rates go from $26 to $139 per square foot and $75 to $115 respectively.

Like other residential markets in the Southland, the San Fernando Valley is also a buyer's market.

According to figures released by the San Fernando Valley Board of Realtors there were 11,575 single-family homes and condominiums listed for sale throughout the area at last count. In January 1991, the average resale price of single-family homes was $294,200, only 0.1 percent higher than a year ago. The condominium average resale price was $143,000, down 8.3 percent from February 1990.

The board reported that there were 535 home sales this month, far down from the 879 homes sold in February of 1990, and the lowest since December 1982 when only 446 sales were reported.

Porter Ranch, in Northridge, has a large number of units for sale. Paul Clark, a company spokesman, reported 5,000 units are already built and 1,000 units will be built over the next two years. But, he noted, Shapell Industries, the project's developer, is, like other developers, experiencing a slowdown. The majority of homes already built are also already sold, he noted.

PHOTO : Valley: Slow-growth measures help keep market tight