Valley office market heads up, housing stays flat.

Brisk leasing in recent months has produced an uptick in the San Fernando Valley office market, but real estate industry sources said home sales have remained sluggish and a flood of industrial space could hit the market if defense firms continue downsizing.

Industry experts said the recent trends reflect how the valley has matured as an office market that can compete against the rest of Los Angeles. But the trends also show how the recession has affected valley markets, they said.

Bill Lassetter, vice president of marketing at Voit Cos., developer of Warner Center Plaza in Woodland Hills, pointed out one sign of the office market's maturity. Warner Center, he said, is a logical place for many businesses in West Los Angeles and other parts of L.A. to either relocate or open branch offices in light of increasingly clogged freeways and growth in the valley.

"An inordinate percentage of people who work on the Westside live in the valley," said Lassetter, who has launched a marketing campaign aimed at wooing prospective tenants from the Westside.

Years ago, of course, those people could hardly work in the valley if they needed office space because there wasn't any to speak of.

The valley evolved first as a bedroom community for Los Angeles, back in the days when commuters could zip quickly "over the hill." In the early 1970s, Voit and other developers began converting former ranches and other land parcels into office buildings and industrial parks, creating a commercial office market that is holding its own despite the recession.

The San Fernando Valley is now one of the leading office markets in greater L.A. in terms of absorption, and brokers said its vacancy rate -- hovering between 14 and 16 percent in recent months -- is respectable.

Commercial brokers said office leasing picked up substantial momentum in the third quarter, with at least one brokerage posting its best quarter ever.

But the valley real estate market still faces many uncertainties, both in the commercial/industrial sector and in the housing market.

A slow growth movement has cast doubt on the future of office projects, and the residential market is posting slower sales while the inventory of unsold homes continues to climb.

Big blocks of industrial space are being added to the market by defense companies like Lockheed as they either cut back or move operations out of California, and industry experts are waiting to see what General Motors will do with its massive Van Nuys facility now that GM has announced it will cease production there.

"I would say that anyone who deals primarily in commercial (office space) leasing has probably seen an uptick in business," said Howe Foster, district manager for Grubb & Ellis in the valley.

But Foster said sales of industrial land are "very flat" compared with previous periods. Many companies that ordinarily might have bought industrial properties are now leasing because financing is hard to obtain, he said.

According to Mike Zugsmith, chairman of Studio City-based Zugsmith-Thind commercial brokerage, his company has enjoyed "a real spurt of activity over the last three months."

Zugsmith said his company posted its highest quarterly revenues ever for the three months ended Sept. 30 and its highest single month's revenue ever in September. The firm is privately held and does not release actual numbers.

How widespread the uptick is, however, remains to be seen. A report by Julien J. Studley Inc. said the 319,205 square feet leased in the valley during July and August was 43 percent less than the square footage leased in the same two months of 1990.

The 1.87 million square feet leased for the first eight months of the year represented a 35 percent decline compared with the same period of 1990, the Studley report said.

According to Zugsmith, the market now faces a "perception problem" regarding the direction in which it is headed, especially in terms of property sales. He said he sees much "pent-up demand" among companies that need to make decisions about expanding their space, but many of those companies are delaying decisions because of uncertainty over the economy.

"It's a question of whether you see the glass as half empty or half full," Zugsmith said. "Sellers are hoping the recovery is just around the corner, so they're holding out for higher prices. But buyers want to buy at the bottom of the market, and they aren't sure if it has hit bottom yet."

Steve Owen, president of the San Fernando Valley Board of Realtors, said many in the housing market may also be holding out for higher or lower prices -- depending on whether they're buyers or sellers.

But Owen said that, from a buyer's point of view, "there has never been a better time to buy a house. I haven't seen interest rates this low in 10 years."

Most of the valley's housing sales are resales of existing homes because most of the available land has been developed, Owen pointed out.

But he said construction of new townhomes and condominiums has increased substantially over the past 10 years on some larger lots that formerly were occupied by just one single-family home.

Owen said the valley has a record high inventory of properties for sale. The inventory of 14,330 listings represents a 14.7-month supply at today's sales pace, he said.

An inventory of about 8,000 to 9,000 homes is a healthy level, Owen said, because it keeps appreciation moving along at about 5 or 6 percent annually but holds prices at a level where sales remain brisk. Such a "nice, steady" increase is preferable to the 22-percent yearly appreciation of the late 1980s, he said.

Zugsmith said an irony of that zooming appreciation is that "most of the homeowners who are opposing growth here in the valley are the ones whose home values have skyrocketed because of growth."

He said all facets of real estate in the valley will be affected by the outcome of battles now being fought by the slow-growth movement, which would sharply curb development at many sites through restrictions in the "specific plans" that govern different communities.

One of the most controversial is the specific plan for Warner Center. Los Angeles city officials are considering a specific plan that would allow development of about 11 million additional square feet at the center over the next 20 to 25 years, bringing the total to about 26 million square feet.

But homeowners have objected to the plan, and the area's city council representative, Joy Picus, has asked for plans to be scaled back to allow a total of 20 million square feet.

Zugsmith said developers who might otherwise buy land or start planning projects are holding back for fear that specific plans might be changed to prevent such development, even if it is permitted under current zoning.

For the time being there is still plenty of space available, including 600,000 square feet at Warner Center Plaza III. Voit staged a grand opening at the 26-story building, the final office tower in Warner Center Plaza, on Sept. 19.

As of press-time Lassetter said the company still had not signed any major tenants for the building but was "talking seriously with several."

Zugsmith said such wide-open office spaces could become a thing of the past if slow-growth advocates have their way. He said the building slowdown caused by lenders tightening up on credit has been exacerbated by developer fears about growth restrictions.

If demand for office space zooms as the economy picks up in coming years, it could quickly create "a very tight (landlords') market," he said.