Despite a stormy residential market, Ventura County's commercial real estate sector has remained healthy, with overall vacancy rates low and rents stable or rising moderately.

Commercial real estate professionals and Economist Mark Schniepp reviewed 2007 and forecast a strong but "bumpy" 2008 at the Ventura County Commercial Real Estate Symposium, hosted by CB Richard Ellis on Friday.

Schniepp, director of the California Economic Forecast Project in Goleta, tried to answer whether the demand for commercial space will remain strong this year.

Schniepp cited several factors that are contributing to a slowing economy. Though still low, the county's unemployment rate climbed to 5.7 percent in December with job growth slowing to a crawl. There were 2,000 jobs created in 2007, sparse growth compared with 6,000 new jobs during each of the two previous years. Schniepp said there will be no job growth this year.

He described the recent stock market as "horrific." And the housing market's weakness has accelerated with no bottom in site.

But there doesn't appear to be much collateral damage to the commercial real estate market, which Schniepp forecasts will remain healthy in 2008.

Industrial

Industrial space is still competitive because of limited construction last year, said Paul Farry, senior vice president of CB Richard Ellis. Fourth-quarter vacancy rates were 4.7 percent in the west county, 9 percent in east county, and 6.3 percent overall.

The overall vacancy rate is up from 5.6 percent from the fourth quarter 2006, but more than a full percentage point lower than the third quarter in 2007.

Low vacancy rates will put upward pressure on rents in some submarkets, and sale values should remain stable in the long run, Farry said. In 2007, there was 7.6 percent rent inflation, and CB Richard Ellis is projecting 8 percent in 2008.

Repercussions from the housing downturn has rippled through all industries, but it's had an upside. As lenders have been more cautious about writing residential loans, it's become easier for commercial and industrial projects to get funded, Farry said.

In terms of acreage, there was 33 acres of industrial land sold in 2007, compared with 27 acres in 2006 and 68 acres in 2005.

For this year, Farry forecasts availability will remain steady, lease rates will be steady or edge up, and building prices and land prices will be steady. Investment is expected to be down because there is not much inventory to buy, and there will be almost no construction.

Office

With demand for small office condos increasing, industrial buildings are being converted to office space.

Office vacancies have edged up, but that was attributed to new inventory. It doesn't mean demand is dropping — it just means supply will take time to absorb, Schniepp said.

Tom Dwyer, senior vice president of office properties at CB Richard Ellis, expects vacancies to reach 17.1 percent through 2008, a 34 percent increase from last year. The reasons cited were increased supply and the possibility that Countrywide Financial Corp. could "shed" significant amounts of the 2.3 million square feet of office space it occupies in the area. Bank of America has made an all-stock offer, valued at about $4.1 billion, to acquire the Calabasas-based mortgage lender. The deal is expected to close early in the second half of this year.

However, Dwyer said he believes vacancies will dip back below 10 percent within 24 months.

More than 1 million square feet of office space will be added to the inventory this year, a 20 percent increase from last year. There's still such a strong demand for office space, said Dwyer, with tenants actively looking to occupy 1.3 million square feet in 2008.

Despite increased supply, rents have not dropped. Rent for office space increased 8.7 percent last year in the Conejo Valley because of lack of available land, building costs and tenant improvements, said Dwyer. In the Oxnard Plain, rent prices increased 5.9 percent, which is still healthy, he added. Rent is projected to increase 4.2 percent in 2008.

Dwyer predicts that office rents will not decline this year, but vacant spaces that are distressed or need maintenance most likely will remain vacant through 2008.

Retail

The retail vacancy rate continues to be hovering at historic lows, 3 percent in the fourth quarter, which is no change from the previous quarter.

David Rush, senior vice president of retail properties, described several new projects coming to Ventura County, including RiverPark in Oxnard, which will include a Whole Foods Market and H&M; Department Store, The Oaks mall renovation in Thousand Oaks and Tuscany Square in Moorpark. Several companies also are expanding in Ventura County, including Costco Wholesale Corp., Fresh & Easy, 24 Hour Fitness, Target, Home Depot and Walgreens.

Rush does not anticipate retail space to remain at historic lows throughout the year. Vacancy rates are beginning to creep up in older centers, and empty shop space is starting to stay on the market longer, according to CB Richard Ellis.

"Will it pull back some? Yes," Rush said. After an unprecedented run over the past decade, "it's healthy to pull back," he said. "It's probably the best thing for the economy in the long run."

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