tri-cities/dy/31 inches/LK1st/mark2nd
By D.B. YOUNG
Contributing Reporter
The big news in the Tri-Cities of Burbank, Glendale and Pasadena was not what happened, but rather what didn’t happen in the first quarter.
During the three-month period, three major tenants indicated that they would not renew leases for large blocks of space in Glendale. That, combined with a similar announcement in the fourth quarter, means 275,000 square feet of space will flood the Burbank and Glendale markets in the months ahead.
In addition, two of the first speculative office projects in Los Angeles County since the early 1990s failed to sign a single tenant in the first quarter, even though early forecasts had predicted brisk pre-leasing activity.
A third speculative project that was slated to break ground in the Burbank Media District during the quarter is similarly devoid of pre-leases.
Such lackluster performance represents a dramatic reversal for the Tri-Cities, which has been among the county’s tightest and most active markets for the past several quarters.
The office vacancy rate for the Tri-Cities rose to 11.3 percent in the first quarter, from 10 percent in the fourth quarter and 10.2 percent in the first quarter of 1997, according to Cushman & Wakefield Inc.
In fact, office vacancies for each of the Tri-Cities at the end of the first quarter were either higher or unchanged from previous months.
The first-quarter vacancy rate in Burbank, the strongest of the three cities, was 6.9 percent, up from 6.5 percent in the fourth quarter and 5.8 percent in the first quarter of 1997.
Glendale’s office vacancy rate of 10.1 percent was unchanged from the fourth quarter, and up from 9.3 percent in the first quarter of 1997.
Pasadena’s vacancy rate rose to 15.2 percent in the first quarter, compared with 12.1 percent in the fourth quarter and 13.8 percent in the first quarter of 1997.
“Perhaps the market isn’t as aggressive or as active as was projected six months ago,” said Bill Boyd, senior vice president at Grubb & Ellis Co.
In last year’s fourth quarter, Cigna Healthcare of California announced it was moving its Glendale headquarters into a new building at 400 N. Brand Boulevard, freeing up about 125,000 square feet of space it now occupies at 505 N. Brand Boulevard.
That announcement was followed by similar news in the first quarter, when Walt Disney Co. said it would vacate 80,000 square feet of space at 600 N. Brand Blvd. and Warner Bros. said it would clear out from 40,000 square feet at 601 N. Brand Blvd., said Boyd.
Also during the quarter, Glendale Federal Bank which is being purchased by First Nationwide Holdings Inc., parent of California Federal Bank, indicated that it would vacate 36,000 square feet of space at 700 N. Brand Blvd., Boyd said.
Glenfed spokesman Ken Preston declined to comment on the move. But he said that Glendale Federal’s headquarters now occupy 250,000 square feet of office space in Glendale, a big chunk of which could eventually come on the market when the merger with Calfed closes later this year.
As news of office vacancies popped up, much of the anticipated pre-leasing activity eluded the two speculative office projects that broke ground late last year in Burbank and Glendale.
In the larger of the two, construction continued in Glendale on Glendale Plaza, a 24-story, 500,000-square-foot office tower at 655 N. Central Avenue, according to Doug Marlow, senior vice president at CB Commercial Real Estate Group Inc. A topping-out ceremony for the building was slated for April 16, and construction should be complete by the first quarter of 1999, he said.
Marlow, a leasing agent for the building, expressed some concern about the glut of vacant space about to hit the Glendale market.
“We’d rather see them taking space than giving it back,” he said. “But even with (the new space available), vacancy across the market is still (low). So from a fundamentals standpoint, it’s still a strong market.”
In Burbank’s emerging Media District North, work also continued on a 215,000-square-foot office building being developed by M. David Paul & Associates on land bounded by Empire Avenue, Ontario Street and Hollywood Way.
Construction of the building should be complete by early summer, said M. David Paul spokesman Jeff Worth. Like the leasing agents at Glendale Plaza, Worth said he has yet to sign any pre-leases for the building.
But he said he was “not overly concerned” about the glut of space in nearby Glendale.
In Burbank’s Media District, meanwhile, a scheduled late-January groundbreaking failed to materialize for a 585,000-square-foot office complex being developed by J.H. Snyder & Co. on land bound by Olive Avenue, California Street and the Ventura (134) Freeway. Industry observers said the apparent market slowdown may have prompted the delay, but J.H. Snyder partner Cliff Goldstein said an unforeseen permitting problem is behind the project’s late start.
Specifically, J.H. Snyder learned only recently that it would have to sign a “tie-back” agreement with the California Department of Transportation to ensure that construction does not cause any disruptions or damage to the adjacent Ventura Freeway, Goldstein said.
“We haven’t excavated any dirt yet because we need the tie-back agreement,” he said. “Everything has gone forward on the project except the excavation.”
Chris Foss, a spokesman for the Burbank City Manager’s office, predicted that the sudden glut of space on the market, coupled with new building activity, could have a dampening effect on some of the many recent office projects that were permitted in Glendale and Burbank last year.
In Burbank alone, the city government has permitted 2.2 million square feet of new space, he said.
“We’ve entitled a great deal of space,” Foss said. “We’re in the cycle of ‘entitle it and see who can build it first.’ I suspect there might be an office project in either city that doesn’t get built.”
While uncertainty reigned in the office market, developers seemed more confident about retail projects in Burbank and Glendale during the first quarter.
During the three-month period, car dealer Bert Boeckmann purchased about 12 acres of land at 777 Front Street in Burbank, where he plans to build an automotive superstore, Foss said.
The city of Burbank also permitted the building of two new Ralphs supermarkets, one at the corner of Alameda Avenue and San Fernando Road and the other at Buena Vista Street and Victory Boulevard, Foss said.
The city is also in negotiations with American Multi-Cinemas Inc. to build a theater-anchored retail complex in the downtown Burbank area bound by First Street, Magnolia Boulevard, Palm Avenue and San Fernando Road.
In the Glendale retail market, work was nearing completion on the Marketplace, a 130,000-square-foot shopping mall on Brand Boulevard between Harvard Street and Colorado Street.
Meanwhile, there were no major Tri-Cities building sales during the quarter, and leasing activity also was limited.
One of the quarter’s biggest leases came in Pasadena, where Provident Investment Counsel took 35,000 square feet of space at 300 N. Lake Avenue, said Todd Doney, a vice president at Cushman Realty Corp. But Doney predicted there will be some major lease deals in the Tri-Cities in the months ahead.
“I think you could see as much as 300,000 square feet of absorption in the next two quarters,” he said. “There’s a couple of big ones looking around. A health care tenant is looking for about 125,000 square feet, and then there’s another couple of big ones looking around the Tri-Cities.”
