Commercial real estate follows slumping homes

A slumping national economy has finally caught up with Ventura County's commercial real estate market.

According to a midyear report released earlier this month by Camarillo-based CB Richard Ellis, vacancy rates for retail, office and industrial space throughout the county are up in the second quarter of 2008 as compared to the same time last year.

The subprime mortgage meltdown and rising gas and food prices have begun to take their toll on the county's commercial real estate, a market that has generally proven itself resilient to economic downturns.

Office

Most affected by the down economy has been office space.

Vacancy rates for office properties throughout the county have climbed 36 percent in the second quarter 2008 as compared to the same time last year, the report said. Vacancy rates were 10.6 percent in 2007 and are now 14.4 percent.

A surplus of new office condos and job cuts at Thousand Oaksbased biotech giant Amgen contributed to the rise in vacancy rates. Bank of America, based in Raleigh, N.C., recently announced it would cut close to 7,500 jobs once it merges with Calabasasbased mortgage company Countrywide, and experts are unsure how the layoffs will affect the county's commercial real estate market.

"Despite the fact that demand for office space remains steady and new projects continue to break ground, tenants have grown more cautious, and many are postponing long-term commitments," said Tom Dwyer, a senior vice president at CB Richard Ellis.

The Conejo Valley remains the hot spot for office space. According to the report, more than 430,000 square feet of office property was either sold or leased since January.

Experts have said that over the past decade a growing number of business owners have relocated their companies to Ventura County from Los Angeles and the San Fernando Valley. Cheaper office rents, better schools and a higher quality of living are often cited as reasons for the move.

In recent years, rising construction costs and a shrinking amount of undeveloped land have allowed landlords to consistently raise rents without offering much in return.

For the first time in a decade, that trend may be changing. According to the report, concessions include rent reduction, large tenant improvement allowances and broker bonuses.

Retail

According to the report, the vacancy rate for retail space in the second quarter is 3.7 percent countywide- a 32 percent increase over second quarter 2007.

"Caution is the name of the game in the retail market sector," said David Rush, a senior vice president of retail properties. "Tenants are still looking for shop space but are being very careful before making decisions, and developers are checking credit before leasing to make sure tenants are viable."

Although vacancy rates have risen, Rush said, the retail market vacancy rates remain "extremely low."

Lower consumer confidence has retailers large and small searching for ways to bring shoppers into stores. Economists are still waiting to see how the federal tax rebates will impact the economy.

Lease rates in East County, which average $2.63 per square foot, remain higher than in West County, with its average of $2.38 per square foot.

Industrial

Perhaps the single strongest sector of the commercial market has been industrial space.

Countywide vacancy rates increased 22 percent, from 6.5 percent in second quarter 2007 to 7.9 percent in 2008.

Paul Farry, senior vice president of industrial properties, said inventory for industrial space remains scarce. Although finding tenants for vacant largescale industrial property remains a challenge, smaller industrial units- between 1,500 and 3,000 square feet- continue to sell well.

Farry said the market conditions are the best they've been in two decades for those looking to invest in industrial property.

"Banks that have been burned in the residential market are recognizing the stability of commercial real estate and offering buyers phenomenal deals," Farry said.

In Camarillo, construction is nearly complete on the $40-million Flynn Road Business Park, which will total 203,620 square feet of both industrial and office space. Also in Camarillo, the Carga Business Center broke ground in March. Once completed, it will include seven flex-use condos ranging in size from 5,500 square feet to 9,700 square feet.