Rents high, vacancies low As space remains limited.

A limited supply of desirable office space kept the Ventura office market's vacancy rate low in the third quarter.

Only 8 percent of the county's 14.2 million square feet was unoccupied at the end of September, according to figures from CB Richard Ellis Group Inc.

Tenants looking for larger blocks of space have few options. That meant lease velocity was practically non-existent.

"There are eight companies looking for 100,000 square feet, minimum," said Michael Slater, senior vice president of CB Richard Ellis. "All of them are in the market already. They're not new tenants. Some are moving around without taking more space, but looking for a better deal or a better building. Others are consolidating or expanding."

With little supply, landlords continued to jack up average asking rates from $2.25 per square foot at the start of the year to $2.50 in the third quarter.

But the rosy picture might be fading. First, available inventory increases each quarter as new projects come out of the ground, particularly in the Conejo Valley.

"Construction has gone from two buildings, totaling 54,705 square feet at year-end 2005, to 14 buildings totaling 765,693 square feet in 2006," said Mark Leonhard, senior vice president of Lee & Associates.

Growth is fueled by pent-up demand and steadily increasing rates, two factors that make speculative building attractive.

Ventura brokers also are bracing for challenging market conditions as residential real estate cools. That's because the County's fourth-largest employer is Calabasas-based Countrywide, one of the world's largest mortgage lenders.

"With the mortgage industry having 'changes,' what would happen if Countrywide suffered from lack of mortgage activity?" wondered John DeGrinis, senior vice president of Colliers International in early October. "If they suffered a setback, that could be dramatic for the market because they occupy a tremendous amount of space."

He had his answer a few days later when the company--which employs approximately 5,700 workers in Simi Valley, Thousand Oaks and Westlake Village--announced that September mortgage loan funding dropped 22 percent year-over-year to $38 billion. Average daily mortgage loan application activity also was down during the same period.

The changing market prompted Countrywide to cut 5 to 10 percent of its employee base in the coming months, and institute a 60-day hiring freeze. The company did not immediately announce plans for office consolidation.

"There's a variety of levels of doom and gloom you could create," DeGrinis said. "But given desirability and diversity of industries in Ventura, I think we have the right ingredients to have a soft landing," he said. "So I see a downturn, but not a significant one."

The Conejo Valley submarket includes Agoura Hills and Calabasas (in Los Angeles County) and Thousand Oaks, Newbury Park and Westlake Village (Ventura County). The latter three form a triangle of leasing and development activity.

"Conejo Valley looks like Beijing," Slater quipped. "There are cranes are everywhere."

Tishman Speyer Properties Inc. did an off-market deal to purchase the 41,000-square-foot Baxter Building from the pharmaceutical giant for $92 million. Baxter will remain as a tenant.

Built for one tenant and zoned for no more than four, TSP secured approval from city officials to renovate the building for multi-tenant occupancy, renaming it The Oaks at Westlake. "It was bought with the idea of making it more efficient and raising rents," Slater noted.

With the submarket's vacancy at 6.6 percent, for six most of the year, landlords can land tenants despite average asking rates at newer properties such as the Arbors above $3.

"Lease rates will head up for the existing and new product," DeGrinis predicted. How high is the question.

Office developers could get a windfall in November. That's when Westlake Village residents will vote on Measure Z, to allow or deny the Town Center commercial development proposed by Lowe's Home Improvement and Rotkin Development.

Despite all the land visible as you crest the Camarillo Grade, there isn't much developable land on the Oxnard Plain. "It's all tied into long-term agriculture," Slater said. That limits activity to Oxnard and Camarillo.

"Oxnard has been the hub for office space because it's in the middle of the plain and easy to get to," Slater noted. But vacancy rose from 8.4 percent at mid-year to 11.1 percent in the third quarter. "Kinko's lease expired, putting 35,000 square feet back on the market." That pushed net absorption to negative-36,146 square feet.

The City of Ventura has the highest vacancy at 15.7 percent.

Major Events:

* Tishman Speyer Properties Inc. acquired the Baxter Building from Baxter Pharmaceuticals in a $92-million deal.

* Westlake Park Place's $27 million eight-building project began grading in late summer.

* Westlake Village residents will vote on Measure Z, which will allow or deny the Town Center commercial development proposed by Lowe's Home Improvement and Rotkin Development. The project is slated for a 20-acre site on Russell Ranch Road and is approved for 376,000 square feet of office product.

* Kinko's lease expired in Oxnard putting 35.000 square feet back on the market, which pushed net absorption to negative 36,146 square feet.

By MARGOT CARMICHAEL LESTER

Contributing Reporter