Downtown L.A. provides both boon and bust for San Gabriel Valley office market.

The San Gabriel Valley office market continued to attract tenants in the fourth quarter because of its highly qualified labor pool, but it faced increasing competition from low rents in the oversupplied downtown Los Angeles market.

On the residential front the market remained flat, with many homes held by absentee owners waiting for higher prices.

Ron Heim, first vice president of CB Commercial's San Gabriel Valley office, said major office projects like the Crossroads Business Park in the City of Industry, Puente Hills Business Center, Eastland Tower and The Lakes in West Covina were all working on major deals as 1991 wound down.

"We expect the vacancy rate to continue to drop in 1992," Heim said. "We expect '92 will be similar to '91 in terms of absorption. We have no new development going on here, so -- even though the absorption rate may be down from what it was in the last three or four years -- it's still taking the vacancy rate down because nothing is being built."

"One thing that's helped us out here is that we've never been a glamour market compared with L.A. or Newport Beach," Heim said. He said the market has relied on "conservative, bread-and-butter companies" that aren't subject to sudden expansion or downsizing like that which affects aerospace and some other more volatile industries.

"So our downsizing hasn't been like a lot of other markets," Heim said. He said major tenants in the market include The South Coast Air Quality Management District and utilities like Southern California Edison Co., which tend to be less affected by the recession.

Even in industries that have been affected, Heim said the San Gabriel Valley tenants tend to be "back-office" operations, like data processing, that don't usually suffer deep cuts when companies downsize.

Heim said the San Gabriel Valley faces increasing competition from downtown Los Angeles buildings, where some landlords are offering lower rents.

"On a pure rental rate basis, it's pretty hard to beat some of the downtown deals," he said. But Heim added that downtown tenants have the added expense of parking, plus traffic problems, so many San Gabriel tenants are willing to pay a little more rent to be closer to home and get free parking.

Heim said this has resulted in vacancies in the high 90-percent range at projects like the 700,000-square-foot Los Angeles Corporate Center in Monterey Park and the 900,000-square-foot former C.F. Braun headquarters in Alhambra.

Heim said the lack of construction leaves fewer "big chunks of contiguous space." Companies that need big blocks of space will probably turn to build-to-suit projects, he said.

"I think you could see a real growth in build-to-suits in 1992 and 1993," he said. "We still have raw land in fairly large amounts out here," that will enable companies to build their own space, he added.

Dave Pinkerton, general manager of the 72-acre McCaslin Business Park, said "we're just trying to renew leases right now."

Pinkerton said the 1-million-square-foot park, which has only 60,000 square feet of vacant space, has been "lucky that most of our leases just happened to bypass most of this downturn. . . . If I had a lot of leases coming up (for renewal) last year and this year and next year, I'd be a lot more concerned."

Pinkerton said many landlords are approaching tenants much sooner now to negotiate lease renewals.

Landlords who previously waited until six months to a year before a lease expiration date are now approaching tenants "much sooner," Pinkerton said, sometimes up to five years before the lease is due to expire.

"It's a great time for the tenants to make deals," he said, but he echoed the prediction of others that "the market's going to tighten up" because of the construction hiatus.

Pinkerton said one advantage of the McCaslin Park has always been that it's close enough to downtown Los Angeles for companies to move their back-office operations there while keeping corporate executives in the city.

Tim Cullen, director of office leasing for Majestic Realty Co., said the company hopes to start construction in 1992 on a five-story, 110,000-square-foot office building at its Crossroads Business Park in addition to two projects for which it already expects to break ground: a 55,000-square-foot build-to-suit structure for the Los Angeles County Department of Public Social Services and a 35,000-square-foot speculative office building.

"We're not getting as many inquiries as we were getting, but then, we don't have all that much space," Cullen said. The biggest vacant space he has now is about 3,000 square feet, Cullen said, so he is filling in the remaining space with tenants as small as 500 and 600 square feet. Crossroads is a 110-acre site that will eventually include 1.5 million square feet and is now about a third developed.

In the housing market, outgoing President Bob Bodkin of the West San Gabriel Valley Association of Realtors said sales totaled 11,000 units for the first 11 months of the year, with 15,000 properties listed for sale. He said the listing represented a full year of inventory, creating one of the best buyers' markets in years when combined with the current low interest rates.

Nonetheless, the market is flat except in "the bottom end of the market," Bodkin said. "Nobody's moving up" to higher-priced homes, he said.

According to Bodkin, the average price for a two-bedroom, one-bathroom "starter house" in the San Gabriel Valley has fallen since reaching its peak of about $250,000 in 1988.

"Now you can buy that same house for about $180,000," he said. "But there are a lot of people looking at those $180,000 homes and they're selling. The only problem is, we're bound to run out of inventory (of entry-level homes) at some point."

Bodkin said in the San Gabriel Valley, where most of the homes were built in the 1950s and 1960s, many of the original home owners are retiring and moving out of state or to retirement communities.

Sixty percent of the homes on the market in the valley are either vacant or occupied by renters, Bodkin said, because so many people owned their homes free and clear and didn't have to sell them before retiring and moving away.

Many of these owners "have already moved and are just waiting for the home to sell so they can take the cash from the sale and put it in the bank," he said.