Real estate: what does the future hold?

Economy and real estate. Four simple words drive dreams of the working middle class and simultaneously, make investment buyers and sellers crazy in today's economy. What does the future hold?

The casual observer might imagine achieving real estate success is as simple as buying a "how-to" book or attending a weekend seminar with real estate celebs like Donald Trump, Robert Allen or a host of others. But ask any real estate professional who plies his trade with a cellphone, laptop and PDA full of contacts built up one transaction at a time, and the truth is evident.

The economy and real estate affect each other in a way not unlike the proverbial chicken and egg. Here in the San Fernando Valley, the commercial real estate market is seemingly holding its own and making mixed progress. Why so? Consider these facts:

Obsolete facilities and under-utilized industrial buildings are undergoing transformation into vehicles for both mixed-use retail and multi-family housing sites. Brokers say that despite interest rates moving up, people are still looking for decent investments. As the SFV continues to evolve from its heyday as the "go to" place for aerospace manufacturing and technological innovation during WWII and the Cold War years, aging industrial facilities are slowly being demolished or transformed.

For example, the new $200 million NoHo Commons mixed-use project under construction adjacent to the Metro Rail station in North Hollywood is creating excitement on several levels: as a vibrant transit-oriented development, marking a dynamic return to a pedestrian-oriented lifestyle, and improving property values. This portal to the North Hollywood arts district will add 700 residential units, retail and live-work spaces designed to appeal to entertainment industry workers and businesses.

The SFV office leasing market downturn of the last few years has reversed. Now in its fifth consecutive quarter of positive net absorption and a very slight upturn in direct vacancy, the ongoing scarcity of both available land and new office construction have put lease rates on the rise.

Our surveys show leasing activity has spawned high single digit rate increases and better than 90 percent building occupancy in areas along the Ventura Boulevard corridor that keep the market sizzling and competitive. Yet it is still an advantageous time for tenants to finalize leases before the office market swings further in favor of ownership.

Prospective office building buyers also see continued improvements to leasing fundamentals as justification for sustaining, if not increasing their aggressive investment activity in spite of rising interest rates and record prices.

A diverse economic base has kept the industrial RE sector in the SFV hot. Our research shows over 90% of the SFV submarket is comprised of companies with fewer than 20 employees. Land scarcity, antiquated industrial facilities and the predominance of small to medium-sized firms are the primary challenges for this submarket. Yet, with industrial space snatched up for owner-user projects as quickly as they come onto the market, it is clear the entrepreneurial spirit is alive and thriving.

Thus, newly developed high-image Class 'A' warehouse-light industrial projects like the Commerce Center at Van Nuys Airport are proving highly attractive for growth-oriented businesses. Today, this eight building, 400,000-sf master-planned business park is completely occupied, every building either leased or sold to businesses who would otherwise have looked outside the area for expansion.

Local government remains under increased pressure to keep taxes low yet deliver services to the community. The announced addition of high-end retailer Neiman-Marcus into Topanga Plaza's expansion plans, small business tax reform, and new Los Angeles mayor-elect Villaraigosa's positive focus on the Valley bring optimism.

Factually, our area economy as a whole continues poised for strong growth, fostered by Governor Schwarzenegger's workers comp reform, the entertainment industry, tourism, service businesses and commercial real estate. Low interest rates provide continued impetus for renters to fuel the first time buyers market and homeowners to forge ahead with remodeling projects. Moreover, job creation is taking on new dimensions as the globalization of business, structural change and intense competition effect change at a rapid pace.

How times have changed. Just 30 years ago, agriculture and a rural sense still dominated the San Fernando Valley. This is the place where a developer realized one of the nation's first award-winning planned communities, where the race to space created a host of aerospace and high technology companies, and where a large dusty backlot became both entertainment center and tourist magnet.

Today, our community is a vital hub between central Los Angeles and the fast-growing Santa Clarita and Conejo Valleys. We are equal in terms of population to be ranked among the top 10 metropolitan regions nationwide. So, what does the future hold for real estate in the San Fernando Valley? Perhaps the way real estate goes, so too will the Valley's fortunes.

This article was contributed by Lee & Associates. LA North/Ventura, a full-service commercial real estate brokerage delivering results throughout Southern California and beyond.