West valley's strength helps market maintain equilibrium. (Real Estate Quarterly -- San Fernando Valley).

THE San Fernando Valley's office market began to settle down in the first three months of the year, with vacancy rates up slightly and rental rates down a bit. And while the amount of absorbed space continued to be in negative territory for the second consecutive quarter, the gap narrowed considerably.

But real estate brokers don't expect big changes anytime soon. A sense of "equilibrium" -- a favorite word these days -- is taking hold over much of the valley. "Last quarter was just sort of a calm, quiet period with very few players," said Jerry Katell, president of Katell Properties. "We're starting this quarter to see a stirring of interest, but it's still nothing like it was two years ago."

The valley's overall vacancy rate for the first quarter of the year was 15.6 percent, barely higher than the 15.5 percent posted in the final quarter of last year. but a jump from the 12.1 percent of a year ago, according to Grubb & Ellis Co.

The average asking rent for prime office space was $2.27 a square foot, down from $2.33 in the previous quarter and not much different from the $2.30 in the first quarter of 2001. Negative absorption was 68,768 square feet, but still an improvement over the negative 256,119 last quarter.

There were pockets of good news. Vacancy rates in the West Valley, traditionally the healthiest part of the region, fell to 15.7 percent from 17.0 percent the previous quarter, though still well up from the 10.3 percent posted in the like quarter a year ago. Net absorption for the area, which includes Woodland Hills, Calabasas, Chatsworth and Northridge, was still in the red, at a negative 19,023 square feet, but a big improvement from the negative 162,518 square feet posted three months before.

Other parts of the Valley fared less well. The Central Valley, which includes Sherman Oaks, Encino and Van Nuys, saw vacancy rates climb to 13.6 percent from 12.4 percent in the previous quarter and 9.1 percent a year ago. The East Valley, encompassing Studio City, Universal City and North Hollywood, saw vacancies rise to 17.9 percent in the quarter from 16.3 in the fourth quarter and 15.1 percent in the like period a year ago.

Even amid this news was some optimism, as space remains relatively scarce, and could in time force vacancy rates back down and rental rates up. "One of the things about the cities along the (101 freeway) corridor, it is difficult to get projects approved, so they don't have a lot of supply," Katell said.

Smaller space wanted

But interest in office space remains subdued -- and whatever interest is there involves smaller units. "A lot of buildings coming on line are sitting vacant," said John DeGrinis, senior vice president at Colliers Seeley International. "Larger users are nonexistent."

Not everybody is so pessimistic, including DeGrinis colleague Marc Spellman, also a Colliers-Seeley senior vice president. He points out that some prime office space remains attractive and in demand, citing two deals at the Warner Center business park.

He concedes there is a glut of available space, but says that activity should pick up. And he adds that if rental rates are down, it's only because they rose so much a couple of years ago. "Rates have decreased from historic highs, but they're still well above what they were 10 years ago," he said.

Katell, who is overseeing the finishing touches at his Agoura Hills business park at 30301 Agoura Hills Road, said he is in negotiations with a financial services firm to take 40,000 square feet of the 67,000-square-foot building. But he admits there is no way the building will open fully occupied.

Grubb & Ellis doesn't break out the San Fernando Valley industrial market, but the industrial market for all of North Los Angeles had vacancy rates rise to 7.5 percent in the first quarter from 7.3 percent the previous quarter, and well up from 4.1 percent the same time a year ago.

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RELATED ARTICLE: San Fernando Valley

Major Events:

* Alliance Commercial Partners sold the 159,264-square-foot Encino Atrium at 16530 Ventura Blvd. in Encino to 16530 Ventura LLC for $20.8 million.

* Leo Leo Daniels of Woodland Hills purchased the 72-unit Century House Apartments at 5307 Sepulveda Blvd. in Sherman Oaks from Sepulveda Apts. of Glendale and Canada for $6.2 million. Dean Zander of Hendricks & Partners represented the seller, and Jim Moore of J. Moore Associates represented the buyer.

* Glencoe/McGraw Hill signed a six-year, $4.2-million lease for 28,000 square feet of office space at 21600 Oxnard St in Warner Center.