San Fernando Valley activity slows slightly as market diversity shows.

The San Fernando Valley office market stayed flat in the fourth quarter, as it did throughout 1991, but brokers are hoping for a slow turnaround this year.

Meanwhile, the San Fernando Valley Board of Realtors reported December sales edged up slightly to end a year that slowed from previous years

Brad Wilson, a senior marketing consultant at Grubb & Ellis Co., said leasing varied greatly from submarket to submarket within the valley. Even within the submarkets, activity varied greatly from building to building, he said.

The Grubb & Ellis year-end survey, for example, showed an overall vacancy rate of 15.5 percent in the valley and absorption of 683,000 square feet. Vacancy rates ranged from a low of 5 percent in the east valley to a high of 23.5 percent in the west valley.

But Wilson said the numbers don't tell the whole story.

"More leasing would have taken place in the east valley if there had been space available," he said.

Wilson said the east valley differs from other markets in that entertainment industry tenants who need more space won't move out of the market to get it. They will instead remain there and make do with their existing space because they don't want to move away from the media district and all the ancillary service companies there, he said.

Despite its reputation as a mecca for media tenants, Wilson said, the east valley is still "highly desirable for non-entertainment tenants who want that kind of a location where you're 20 minutes from everywhere, barring traffic."

The fourth quarter turned out to be much like the third quarter and the rest of 1991, said Nancy Stark, a senior associate with CB Commercial.

The best term to describe the fourth quarter would be "slow progress," Stark said. "I don't think concession packages or rental rates really changed from the previous quarter. Things were pretty stable. Deals were made, but they were made slowly, as they were for the whole year. There is lots of caution, lots of evaluation and reevaluation among tenants."

Overall, Stark said, 1991 was "a much softer, slower year" than 1990, with "many fewer deals consummated."

But she said 1992 "may be slightly brighter than 1991, probably beginning at mid-year, but mainly depending on our economy."

Added Stark: "Real estate decisions are directly related to the economy. Many people have had a wait-and-see attitude. Many of my clients that I thought might make deals in the last six months of 1991 said let's talk in the first quarter of '92, and my hunch is they're going to take the first half of '92 to assess any changes in their own companies' businesses before they make any commitments."

Brokers said much of the leasing in the central valley submarket during 1991 was tenants moving from one building to another within the market. But that could be changing.

Wilson said some of the new buildings in the central valley "are starting to see a lot of activity because of a lack of choices elsewhere," which could lead to some strong leasing this year.

Among those where leasing is picking up is the 400,000-square-foot McNeill Plaza at Ventura and Sepulveda boulevards, Wilson said.

"There is a ton of market activity right now and larger chunks of space are becoming fewer and fewer," Wilson said. "If you're looking for smaller chunks of space," he added, "there's plenty to choose from."

In the east valley, blocks of space greater than 5,000 square feet are rare, while in the central valley "you can pretty much pick your size."

Wilson noted that landlords in the central and west valley are "being very aggressive" in trying to obtain tenants, "possibly because of pressure from lenders to secure cash flow."

Wilson believes the aggressiveness will be short-lived until the lack of construction eats up the empty space and turns leasing into more of a landlords' market.

According to Mike Zugsmith of Zugsmith-Thind commercial brokerage, deals seemed to take longer to consummate in 1991, possibly because of hesitation caused by worry about the economy.

He said his company posted a strong fourth quarter considering the weak economy, but "certainly not as strong as we would ideally like to see it in a good economy."

Zugsmith said he expects 1992 to be "a replay of 1991."

"We don't expect any major improvement in the market, but I don't think there will be any major deterioration either," he said. He said his brokerage is "positioning ourselves for what, hopefully, will be a good turnaround (in the economy) in 1993."

"I think the hallmark of 1991 was that everything took substantially longer than it used to. If an office lease would have taken three or four weeks in 1990, it was three times that amount of time in 1991," Zugsmith said.

Stark said the valley remains one of the stronger markets in Los Angeles County, especially since the construction slowdown will ultimately lead to absorption of space.

She said the fourth quarter saw the continuation of what she foresees as a long-term trend: the migration of tenants toward offices in the western end of the valley, except for the popular Burbank media district.

The availability of housing and quality office buildings are major factors in the trend, she said, but many tenants who leave the central valley to move west will be replaced by Westside Los Angeles tenants moving to the central valley.

"Lower commute times, a strong labor pool, ease of access and more competitive rates" make the valley attractive to Westside tenants, Stark explained.

In the housing market, the San Fernando Valley Board of Realtors reported 818 sales in December, up 3.7 percent from December of 1990 and an increase of 7.8 percent from November.

For the year, the board reported 8,585 single-family homes sold, a dip of only 1.62 percent from 1990, while the number of condominium sales dropped 20 percent to 2,646.

"We're guardedly optimistic that consumer confidence will return in 1992," said Lorrie Griffey, board president, "partly because we're already seeing more activity and the number of escrows closed in December was unusually strong."

Added Jim Link, the board's executive vice president: "If the war with Iraq had not glued everyone to CNN news reports during the first quarter of the year, it's possible that sales would have been comparable to 1990."

Link said the housing market couldn't be called "great," but pointed out that "we're really not that far off a normal market sales pace."

"We're hoping that today's increased activity -- more people attending open houses, more calls on newspaper advertisements and more offers being presented -- will turn into more home sales. But frankly, it's too soon to tell," he said.