Ventura Co. office vacancies still rising, rental rates still sinking.

Office vacancy rates ranged from flat to slightly higher in Ventura County during the third quarter, as businesses continued to act cautiously in light of the recession. In the housing market, meanwhile, sales remained flat but reflected increased activity by entry-level buyers.

Thad W.

"I think predominantly what we saw in the third quarter was the same kind of activity we saw in the previous two quarters," Seligman said. "Companies are reducing their occupancy costs by reducing the rent they are paying."

This doesn't always mean companies are taking less space, Seligman pointed out. In many cases they can move to higher-quality space, or even larger space, and still pay less rent.

"In many cases they're taking more space at lower rates and still coming out ahead," Seligman said. "It's not necessarily net absorption, but people are moving to different space within the Ventura market."

"Net absorption" refers to the amount of space leased in a given area during a given time period, minus the amount vacated.

At the end of last year and the beginning of this year, Ventura companies were consolidating operations into centralized locations, Seligman said. Now some of those consolidations are resulting in larger blocks of space being leased.

Seligman said there is some concern in the market that much of the activity is simply "trading vacant space."

"Rents are being driven down somewhat, as tenants in Class B buildings are moving to better buildings for the same or lower rent," he said.

But he added that the drop in rents has actually been very slight in recent months, and the change has also been slight in free rent and other concessions being offered by landlords.

"We are seeing shorter terms on the leases," Seligman said. "Landlords are the ones pushing (shorter-term leases) because they don't want to get locked into long terms at these low rents. The tenants are fairly secure in signing longer-term leases because they can't believe rents will go much lower."

One of the biggest differences between the current market and markets in the past, Seligman explained, is that in past downturns "we felt we could forecast when it would turn around."

But in the current downturn, he said, "The forecast now is that in Southern California we may be looking at three to five years before the comeback."

Tim Grant, a senior associate at CB Commercial Real Estate Services, said the office vacancy rate in western Ventura County increased to 26.2 percent in the third quarter, compared with 25.2 percent in the second quarter.

Grant's survey showed that the overall 26.2 percent rate included a 29.7 percent vacancy in the Oxnard/Port Hueneme submarket, 27.7 percent in the Camarillo submarket and 19.8 percent in the City of Ventura submarket.

"This was the second straight quarterly increase after four consecutive quarters of decreasing vacancies," said Grant. He attributed the increase in empty space to two primary factors: continued downsizing by tenants renewing or relocating their businesses and continuing cutbacks by the defense industry.

CB Commercial's survey of 90 Ventura County office buildings showed a 31,187-square-foot increase in available space during the quarter, boosting the total available space to 812,000 square feet out of the 3.1 million square feet surveyed. The survey excludes owner-occupied, government-owned, medical and condominium office space.

The only two buildings newly constructed in Ventura County are both projects of owner-users who will occupy most of that space. These are the Union of Food and Commercial Workers' 27,350-square-foot office building in eastern Camarillo and the State Compensation Insurance Fund's three-story, 115,000-square-foot regional office building at the Oxnard Town Center.

Office users are cutting back on space because of uncertainty about the economy, Grant explained. He said the defense industry cutbacks hurt Ventura County because they affect the naval facilities at Point Mugu and Port Hueneme and their contractors.

"What little leasing activity there has been in the region has been mostly from local businesses who are taking advantage of the troubled market conditions to upgrade or consolidate their offices," Grant said.

But changes of ownership and management in office buildings, triggered by bank foreclosures and RTC actions, "have created opportunities for tenants by making more-aggressive terms available throughout the market," Grant said.

"This trend should continue and, in some cases, will result in better product being offered, as older buildings get face-lifts to compete in the marketplace for the small pool of tenants who are looking," he added.

Grant commented that vacancy rates should begin to fall when the economy turns around, but uncertainty about when that will be has caused many businesses to postpone leasing decisions.

"Tremendous pent-up demand exists in this market from local users who have consistently avoided a real estate decision, even though their office space is no longer sufficient, he said. "Historically, the majority of office users await clear positive signals from the economy before making their moves."

Once the economy turns around, vacancy rates should fall below 20 percent, Grant said. He noted that long-range prospects for the Ventura market "remain bright due to the lack of new construction and increased expectations of an economic upturn."

In the housing market, President George Kite of the Ventura Board of Realtors said the number of homes sales increased slightly over last year.

"We're up just the tiniest fraction in the number of escrows opened," said Kite. He explained that the number of escrows opened has hovered at about 25 per week for the past three years, after reaching its peak of 46 per week in 1988.

But the median-priced house has dropped during that same three-year period from $238,000 to $205,000. High-priced homes are seeing the biggest declines.

"About seven out of 10 homes we're selling are priced under $200,000. It's first-time buyers coming into the market," Kite said.