Ventura County office market softens on downsizing.

But county's industrial market displays strength

Stability and slow absorption marked the first-quarter activity in the Ventura County industrial and office markets, where vacancy rates have been declining gradually for the past two years as a result of a virtual halt in construction.

In the office market, the vacancy rate during the first quarter increased for the first time after nine straight quarters of decline, reported Michael Slater, a senior associate at CB Commercial Real Estate Group Inc. The county's office vacancy rate was 16 percent at the end of the first quarter, up 0.7 percent from the previous quarter but down 3.2 percent from the first quarter of 1994.

Slater attributed the slight first-quarter increase to "a slowing down of the economy due to increased business pressures brought on by interest rate hikes." He said the biggest single factor was the "big hit" taken by financial services firms, which "grew at a tremendous pace over the past two and a half years," but have downsized greatly in recent months because rising interest rates have driven many companies out of the mortgage refinancing business.

For example, he explained, the Water Court business park in the Ventura County portion of Westlake Village had eight lending and mortgage brokerage institutions as tenants a year ago, but today there are just two.

Overall, however, the Ventura County office market remains solid, Slater said, and effective rental rates are rising slightly.

"The increase in effective rates isn't necessarily reflected in the rental rates themselves. What has happened is that free rent and other concessions are not nearly as lucrative as they were a few years ago, which raises the effective rates," Slater said.

Despite the slight rise in the vacancy rate in the fast quarter, Slater said he foresees an overall stabilizing in the vacancy rate and continued slow absorption in the office market during the second quarter.

"It will probably be flat in the second quarter, but I don't think we will see any more increase in vacancy," he added. "I expect we will see more activity in the third and fourth quarters."

No speculative construction is on the immediate horizon, however, Slater said, in part because existing buildings can still be bought for less than the price of new construction. "There are several office buildings in the county scheduled to close escrow in the second and third quarters at prices below replacement value," he said.

Small industrial spaces get hot

In the industrial market, brokers said steady absorption and lack of construction have created a demand for smaller buildings, even though a number of larger buildings remain vacant. According to CB Commercial, Ventura County's industrial vacancy rate decreased to 9.6 percent in the first quarter, down 1.8 percent from the previous quarter and down 0.7 percent from the first quarter of 1994.

"There are some buildings available in the 20,000-to-30,000-square-foot range, but there are shortages in the 10,000-to-15,000-square-foot range in all of the submarkets," said Phil Krevoy, an industrial market associate with CB Commercial. "We could even use some spaces in the 8,000-square-foot range."

According to Krevoy and other industrial brokers, the demand for smaller industrial spaces is coming from service companies and start-up firms in a variety of industries.

"There is clearly a need for product because there is a shortage of buildings in most of the smaller size ranges," said Bram White, an executive vice president with Daum Commercial Real Estate Services. "We are still not at the point where lenders will look at 'spec' development, but there is a lot of talk about build-to-suits."

Krevoy added that one reason speculative development still hasn't begun is that rental rates have remained low despite the gradual decline in vacancy rates. "Spec building probably still doesn't pencil out," he said.

Investment market improves

White said there are definite signs that the sales market is improving because "investors are sensing that the market has bottomed out."

Among the first-quarter deals was the sale of The Market Business Park in Oxnard by Atlanta-based Confederation Life Insurance Co. to investor Fred Kavli of Moorpark for $3.5 million. Doug Kubiske of Daum's Camarillo office, which represented the seller, said there were 11 offers for the 7.5-acre, 95,000-square-foot business park.

White added that Daum is also representing IBM in its pending sale of an eight-acre site along the Ventura Freeway in the Ventura County portion of Westlake Village. That property is now in escrow with two separate buyers, who plan to divide the site into a five-acre parcel and a three-acre parcel.

In the Ventura County retail market, the vacancy rate was 7.3 percent at the end of the first quarter, up 0.5 percent from year-end 1994, but down 0.2 percent from the first quarter of last year, reported CB Commercial associate Larry Tanji. A slight first-quarter increase in the retail vacancy rate is typical because, "in general, when retail businesses are operating precariously, they will hold out until the end of the Christmas sales season and close shop shortly thereafter," Tanji said.

The first quarter also is typically the slowest quarter for retail leasing, he pointed out. "The preceding three quarters actually show overall decreasing vacancy rates," Tanji said. "We believe that the market is strengthening slowly," especially since there is no new construction due to be completed in the next two quarters.