Vacancy rates rise from glut of space developed in boom. (Real Estate Quarterly -- Ventura County).

THE aftermath of the tech bust continued to hang over Ventura County's office market during the fourth quarter as new developments planned before the bubble burst came on line, driving up the vacancy rate.

Net absorption increased to 363,576 square feet in the October-December period from 269,440 square feet in the previous three months, according to CB Richard Ellis. Even so, the vacancy rate edged up to 14.5 percent from 14.1 percent in the previous three months and 13.3 percent in fourth quarter 2001.

East Ventura County, where most of the prime office space exists, had a 15.5 percent vacancy rate, up from 15.2 percent in the third quarter.

"That's not a surprise to us," said Gerald Pelton, managing director of CB Richard Ellis. "(Developers) were staring down the barrel of the dot-com and high-tech market meltdowns. When you've got the supply curve going up and the demand curve going down, you've got a problem."

The situation would have been much worse had Ventura County not provided brokers with the biggest shot in the arm. Its health care agency in December committed $12 million toward a 10-year lease of a 50,500-square-foot building in the Pacific West Corporate Center at 2240 East Gonzales Road in Oxnard.

The county's Behavioral Health Department also signed a seven-year lease for $3 million on a 22,000-square-foot building at 72 Moody Court in Thousand Oaks.

The Oxnard building won't be complete until May, and it is the only office building in the county expected to enter the market in 2003, said Tom Dwyer, CB Richard Ellis' first vice president of the office market.

That bodes well for developers who have been sitting on vacant buildings that came on the market within the last 12 months.

Tenants seeking space in excess of 30,000 square feet -- there aren't many of them in Ventura County -- will continue to be offered discounts of as much as 20 cents per square foot for the first year of a minimum five-year agreement.

Monthly office rates during the fourth quarter remained the same as the previous quarter: $2.25 to $2.50 per square foot in the east county and $1.65 to $1.85 in the west county.

"It's going to be a tenants' market," Dwyer said. "Those landlords have finished construction and are not receiving income for their speculative buildings."

He said his office expects to complete three transactions totaling 570,000-square-feet for separate high-tech, biotech and insurance companies sometime this year.

Million feet available

Those and other transactions undoubtedly will bring the office vacancy rate down with no new construction coming on line this year, said Dwyer. The fourth quarter ended with 1.4 million square feet of space available.

Such are the drawbacks for office developers who require two to three years to complete a project from the planning phase.

Industrial developers, who can turn around a building in about a year, had less available space during the last quarter. As a result, the industrial vacancy rate fell to 7 percent from 7.8 percent in the third quarter and 8.3 percent in the fourth quarter 2001.

Triple net industrial rents (which require tenants to pay taxes, insurance and building maintenance fees) remained stable during the last six months, at 65 cents to 75 cents per square foot in the east county and 55 cents to 70 cents in the west county.

And with interest rates low and financing available, it was a buyers' market.

"Our market here is quite often (dominated) by privately-held small businesses," said George Eales, first vice president of Daum Commercial Real Estate Services. "The opportunity to purchase a facility rather than lease it is economically superior."

Those prices were enough to attract several other major deals.

The Gap Inc. sold its 240,598-square-foot west coast distribution center at 5198 Colt St in Ventura last October to Pacific Prime Properties. The real estate investment company expects to sign an agreement with an undisclosed tenant to lease 145,000 square feet of the facility this quarter.

Avalon Bay Communities, a multi-family residential developer, bought a 92,987-square-foot office building at 1559 Flynn Road in Camarillo for $5.3 million in October. Plans call for the building to be torn down and the land rezoned for residential use.

In the third quarter, smaller entrepreneurs were buying space, perceiving real estate as a good investment and using money that might otherwise have gone into stocks. That was the trend for most of 2002 as financing terms were as good as they had been in 40 or 50 years.

The trend toward buying space often involved companies wanting to move their offices. But often the move resulted in consolidation. This pushed vacancies in office buildings higher.

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RELATED ARTICLE: Major Events:

* Ventura County signed a 10-year lease for $12 million on a 50,500-square-foot building at 2240 East Gonzales Road in Oxnard.

* Pacific Prime Properties paid an undisclosed amount for a 240,598-square-foot distribution center at 5198 Colt St. in Ventura.

* Avalon Bay Communities bought a 92,987-square-foot office building at 1559 Flynn Road in Camarillo for $5.3 million.

* SIMA Corp. purchased a 36,304 square foot of research and development space for an undisclosed amount at 667,703 and 711 Rancho Conejo Blvd. in Newbury Park.