Commercial real estate market weathers slow economy
Camarillo led the way in major sales for industrial property
By Daniel Wolowicz camarillo@theacorn.com

A slumping home real estate market has had little impact on Ventura County's commercial real estate, industry experts said last week.

The evershrinking availability of undeveloped land and a diverse and stable economy throughout the county has helped push lease rates higher and keep purchase prices up for retail, office and industrial properties. Overall, Ventura County's commercial real estate market was robust throughout 2007, according to experts.

The 2007 year-end report came last week during a breakfast symposium in Oxnard given by executives with the Camarillo offices of real estate brokerage firm CB Richard Ellis.

Retail property

Talks of a nationwide recession brought on by the slumping housing market have done little to change vacancy rates for retail space across Ventura County.

"For all the concerns that have been going on in the economy right now, we've been pleasantly surprised that shops have stayed leased," said David Rush, senior vice president of retail properties.

Rush said countywide vacancy rates for retail space have remained tight at 3 percent in 2007, down from 3.8 percent in 2006.

He said older shopping centers are losing more tenants to newer centers, causing longer vacancies in the older malls.

"Newer centers always are draws, and that's what's forcing some of the older centers to either remodel or potentially lose some of their tenants," Rush said.

He expects the vacancy rate to jump at least a percentage point in the coming year. He said it's a correction in the retail property market that has seen a steady decline in vacancy rates for more than 10 years.

Office property

Office space, particularly in the much-coveted Conejo Valley, remains a hot commodity throughout the county, driving investors to inject more than $740 million into the office market.

The scarcity of undeveloped land and the rising cost of construction materials, along with a growing number of companies migrating from the San Fernando Valley to Ventura County, are leading factors affecting the office market.

Tom Dwyer, a senior vice president at CB Richard Ellis, said even though construction of more than 1.3 million square feet of office space along the 101 Freeway has caused vacancy rates to jump 34 percent countywide, those empty offices could be filled as early as next year due in large part to a growing demand for office space. The market for office space, Dwyer said, will eventually return to about a 7.6 percent vacancy rate, as compared to the current rate of 17.1 percent.

Regardless of higher vacancy rates, rent costs remain steady. Lease rates range from just over $2.51 per square foot in the East County to around $1.90 per square foot in the West County.

Dwyer said he predicts landlords won't drop rents but will be more inclined to remodel their buildings and refurbish their interiors. The flood of new office space will lure tenants out of the older buildings and will also force owners to make upgrades.

Smaller offices- condos between 1,500 and 2,500 square feet- remain the most preferred by local companies, while larger sites, those over 15,000 square feet, are selling less quickly.

"Tenants looking for 5,000 square feet or less of office space are having a hard time finding quality office space," Dwyer said. "But the amount of available larger office space . . . is going to more than double in the next few years."

For the past year, Dwyer said, larger companies have been trimming costs by leasing smaller offices. Despite the downsizing trend, a flood of prospective tenants are actively looking for more than 1.3 million square feet of office space in 2008 and have kept the office market competitive, he said.

Analysts are still unsure how layoffs at the Thousand Oaks headquarters of Amgen and the recent buyout of Calabasas-based Countrywide by Bank of America will affect the county.

The impact, however, has not yet been felt in the office market, Dwyer said, as Countrywide has kept all of its 2.3 million square feet of property and Amgen is subleasing a mere 3 percent of its 3.4-million-square-foot Thousand Oaks campus.

Although far more companies are leasing office space rather than buying it, asking prices in the Conejo Valley remain between $465 and $585 a square foot, an average 25 percent more than Simi Valley, Moorpark and cities in the West County.

Industrial property

Available industrial property remained low countywide throughout 2007- 4.7 percent in the West County, 6.3 percent in the East County- ending the fourth quarter with a 6.3 percent vacancy rate. And although the number is a 12 percent increase over the fourth quarter of 2006, it's the second-lowest fourth quarter rate in nine years.

Paul Farry, senior vice president of industrial properties, said the trend to convert industrial space into offices and to rezone industrial property for office use has kept the number of available industrial properties low and, consequently, pushed lease rates steadily higher.

As with all commercial property, little or no available undeveloped land has made industrial property, particularly smaller units between 1,500 and 3,000 square feet, increasingly expensive. Farry said there is very little new construction being done on industrial property.

Farry said there were 33 acres of industrial land sold in 2007, as compared with 27 in 2006 and nearly 70 acres in 2005.

Camarillo led the way in major sales of industrial property for the county. Last year's largest deal was the purchase of Technicolor's 900,000-square-foot facility for a reported $95 million by Santa Monicabased Sandstone Properties in July. About half of the property has since been leased to Goleta-based Deckers Outdoor Corp.

Also in Camarillo, Golden State Medical Supplies, a prescription drug wholesale distributor, purchased the 95,000squarefoot building on Camino Ruiz for nearly $12 million from Oxnardbased PEGH Investments.

The East County saw two large sales both made by a privately held company. The first was the sale of a 49,000squarefoot building in Thousand Oaks to Sacramento-based Panattoni Development for $7.2 million. Farry said Panattoni plans to convert the building into office suites.

The same privately held company also sold a fivebuilding industrial complex currently leased by Amgen in Thousand Oaks to Chicagobased First Industrial Realty Trust.