Positive Market Activity For First Quarter 2018

The San Fernando Valley and Ventura County office market recorded positive net absorption at 108,700 square feet as vacancy declined by 30 basis points in the first quarter. Asking rental rates recorded $2.39 PSF FSG, a 5.3% year-over-year increase. With only one new project under construction on the horizon, the market will remain supply-constrained and absorption is expected to remain flat to slightly positive. Given these market conditions, San Fernando Valley and Ventura County office market trends are expected to move at a slow rate.

Overall vacancy for the market decreased from 14.1% to 13.8% during the first quarter. A longer historical perspective shows that the vacancy rate a year ago stood at 14.4%. Net absorption recorded positive movement at 108,700 square feet in the first quarter, compared to last quarter’s negative 49,000 square feet. The weighted average asking rent for direct space increased to $2.39 PSF FSG from $2.33 one quarter ago. This marks a high point for average asking rental rates since the mid-2010 rate of $2.28. No office buildings were delivered during the first quarter, and currently there are no buildings under construction. Investment sales activity for buildings over 25,000 square feet increased from the fourth quarter, recording more than $223.3 million in sales volume, up from $72.5 million. The largest transaction recorded was Felton Properties, Inc. acquiring the The Arbors of Thousand Oaks portfolio in Thousand Oaks for $47 million ($170 PSF).

Key Takeaways:

  • The San Fernando Valley and Ventura County office market closed the first quarter with positive movement as net absorption recorded 108,700 square feet.

  • The office market vacancy rate decreased by 30 basis points to 13.8%.

  • Rental rates increased by $0.06 from the fourth quarter to $2.39 per square foot (PSF) full service gross (FSG).

  • No new projects were delivered in the first quarter. One project is currently under construction totaling 218,300 square feet.

  • The Los Angeles County unemployment rate declined to 4.5%, a decrease of 40 basis points from last year. Leisure and hospitality listed the largest year-over-year employment gain by adding 26,000 jobs. Educational and health services posted the second largest job growth adding 21,600 jobs.

Outlook:

Vacancy rates in the San Fernando Valley and Ventura County market are expected to remain stable through the first half of 2018 due to the lack of new construction. As vacancy remains, both absorption and leasing activity are expected to remain positive through the first half of 2018. As vacancy rates remain stable, asking rental rates will continue to increase. No new office inventory will be delivered in 2018. Real estate is proving to be a desirable asset as investors continue to look for stable income-producing assets and hedge against perceived upcoming inflation.