SNAPSHOT, APRIL 2004

San Fernando Valley Industrial Market

Tingus

During the last 10 years or so, the number of new industrial developments in the San Fernando Valley has been minimal, mostly due to the scarcity of vacant land in the area. At present, there are only two or three significant industrial developments — exceeding 100,000 square feet in size — which is typical for the Valley’s market.

Voit Development Company is currently developing the Voit Burbank Airport Commerce Center, a 20-acre site adjacent to the Burbank Airport in the city of Sun Valley. The approximately 500,000-square-foot development will offer industrial facilities for sale and lease.

With the exception of Voit’s project in Sun Valley, the trend has been for companies to acquire and redevelop old, antiquated manufacturing sites in the San Fernando Valley. For example, developer Nearon Enterprises chose the 18-acre Kaiser Marqardt site in Van Nuys, California, in which to construct an eight-building, 350,000-square-foot industrial business park, with facilities ranging from 34,000 to 60,000 square feet.

Another Voit development will take place at the former site of the General Motors automobile manufacturing facility, also in Van Nuys. Voit has exercised the option to purchase 20 acres of the property including an approximately 200,000-square-foot manufacturing building. The facility will be rehabbed and offered for sale or lease with the balance of the site slated for build-to-suits or speculative development. The Voit and Nearon projects will impact the market by providing tenants and buyers the opportunities to find new, state-of-the-art industrial product in a market that sees very little new development annually.

The central and eastern San Fernando Valley submarkets are experiencing the majority of industrial development due to the former aerospace facilities built in the 1940s, ‘50s and ‘60s that do not measure up to today’s standards. Many old buildings like these will be prime redevelopment targets in coming years.

In the past 6 months, approximately 18 leases have been completed throughout the San Fernando and Santa Clarita valleys, including two at The Valencia Industrial Center located in Valencia, California (68,592 square feet at 27420 Avenue Scott and 44,702 square feet at 26145 W. Technology Dr.). Also, a nearly 52,000-square-foot lease was completed at the Cascades Business Park in Sylmar, California. Rental rates in the San Fernando Valley range from 50 cents to 85 cents per square foot. The scarcity of industrial product, as well as the high cost of building ownership and land acquisition, will push lease rates upward approximately 10 to 12 percent this year.

The current vacancy rate for industrial properties is approximately 4.5 percent. There is an extremely low number of industrial vacancies in the San Fernando Valley. It appears that the buying binge of 2003 has significantly slowed, not due to interest rates or the lack of buyers, but again to the scarcity of product. The buildings for sale are 20 to 25 percent higher in price than we have seen in the past 12 to 18 months, causing other buyers to reconsider their lease-versus-buy strategies.

The San Fernando Valley industrial market is healthy, and Lee & Associates anticipates a transition from heavy sales and very few leases in 2003 to heavy leasing with moderate sales in 2004.

Mike Tingus is senior vice president and managing principal at Lee & Associates-L.A. North/ Ventura Inc. in Calabasas, Califonia.

INDUSTRIAL RALLY IN THE VALLEY Voit’s San Fernando development will provide users with immediacy and innovation. Voit Development Company is building the $44 million, 480,000-square-foot Voit Burbank Airport Commerce Center in San Fernando Valley, California. In real estate, especially in the industrial market, demand and displacement are inversely proportional. The more an industrial facility is displaced from its customer base and key transportation routes, the less demand there will be for it. Tim Regan, vice president of Voit Development Company in Woodland Hills, California, knows this well. “In the Inland Empire, the land is much less expensive but it’s farther out,” he says. “If you can have an industrial building close in, it’s just that much more valuable. There’s a lot of industrial park product out in the Inland Empire, but it’s a little bit too far out for a lot of users. A lot of them want to be in close, closer to the city.” It’s little wonder then that Regan and his Voit colleagues jumped at the chance to purchase industrially zoned land in the San Fernando Valley. The result will be the $44 million, 480,000-square-foot Voit Burbank Airport Commerce Center (VBACC). The industrial park, the first phase of which will be completed this month, is located adjacent to the Burbank/Bob Hope Airport on the site of a former Lockheed Martin facility in Los Angeles County. As if the close proximity to Los Angeles, the airport and the 5, 134 and 101 freeways isn’t enough, the industrial market conditions in the San Fernando Valley are very favorable for investors and developers. “The industrial market is extremely tight in the San Fernando Valley,” says Regan. “Vacancy rates are about 3 to 4 percent, which is extremely good for us in building new product. But, more importantly, for new functional product for sale, the vacancy rate drops to about 1 percent, so we felt very confident about the project. That’s what got us to pursue the property.” If San Fernando Valley industrial facilities built in the 1960s are trading at $100 per square foot, Regan knows his company’s state-of-the-art VBACC buildings will go for $120 per square foot or more. In fact, VBACC’s 205,000-square-foot first phase received such a great response — 60 percent is already under contract — that Voit is stepping up its timeline for the development of the rest of the property. Besides the healthy market conditions, VBACC’s location has another advantage — its proximity to the major movie studios. “All the major studios are a stone’s throw away and a lot of the support people in that industry have to be within a certain radius of the studios in order to do business with them,” says Regan. “So you have guys that provide lighting and props and all kinds of support to the studios that need to be in this area.” Voit Development Company has specialized in industrial parks for years but the premium on San Fernando Valley real estate for this project was so high that the company had to diversify its approach. “Because the land basis was so high — higher than what we’d normally pay for industrial land — we knew we had to get more product on the site to make it pencil,” says Regan. As a result, VBACC will also offer industrial condos so that industrial users will have a range of space options, from large, fee-simple buildings to 5,000-square-foot units. A smaller industrial offering and the continued low interest rates mean that some users can buy their own units or small buildings and maintain lower operating costs than if they were to lease. — Brian A. Lee

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