Absorption Slows, But Fails to Stall Steady Drop in Vacancies

By MICHAEL THURESSON
Staff Reporter

An active sublease market along with demand from smaller companies helped pull Tri-Cities vacancies down slightly in the second quarter.

The vacancy rate for the broader Burbank, Pasadena and Glendale market was 13.3 percent, according to Grubb & Ellis Co., down from 13.5 percent for the January-March period and 14 percent in the like period last year.

Net absorption, the amount of space taken off the market relative to the amount coming available, was a positive 29,640 square feet in the second quarter, compared with 374,609 square feet in the first quarter and 217,941 square feet in the year-ago period.

"There haven't been any big leases in the last quarter but there are a number of tenants in the market actively negotiating for space," said Todd Doney, managing director at Insignia/ESG. "You can expect to see good absorption numbers in the third and fourth quarters."

As with other markets around the county, inexpensive money and healthy occupancy levels led to an increase in investment activity in the quarter.

"Because of lack of available properties to exchange in the area, high prices have turned non-sellers into sellers," said David Esterkes, vice president at NAI Capital Commercial.

Tishman Speyer Properties agreed to buy the 493,000 square-foot Tower Burbank from Beacon Capital Partners for $115 million in a deal that is anticipated to close by the end of this month.

Another sale came as Jurgenson's Markets Inc. sold a 23,266-square-foot retail building for $6.5 million to Furst Enterprises Ltd.

Pasadena was the only market that saw an increase in vacancy figures, which inched up to 10.7 percent from 9.3 percent in the first quarter.

It was also the only Tri-Cities submarket to show negative net absorption, at 88,453 square feet. Among the spaces coming open were two full floors at 800 Colorado Blvd. Regis Executive Suites vacated the space in the building owned by Equity Office Properties.

Also in Pasadena, Hanlin & Green leased 3,500 square feet at 225 S. Lake in Pasadena at $2.25 per square foot.

ATI Systems International expanded its corporate headquarters at 3280 Foothill Blvd. to 15,542 square feet while extending its lease from 2005 to 2008. The deal reduced its rental rate by more than 15 percent in return for its longer-term commitment.

In Pasadena, developer Wilson Properties purchased a 15,000-square-foot office building for $1.4 million and has plans to rehab it as a technology research center. The developer plans to begin leasing it out in increments of 5,000 square feet in November at a rate of $1.40 per square foot.

Glendale showed the strongest net absorption of the Tri-Cities submarkets at 70,761 square feet, up from a negative net absorption of 50,436 square feet in the previous quarter.

Glendale also led the market with more than 70,000 square feet under construction. Real estate brokers expect the rest of the year to show increased net absorption in Glendale.

Leasing has been limited to smaller deals. Fremont Indemnity Co. was able to sublease 20,000 square feet in four deals at its 500 N. Brand Blvd. offices. Mortgage company LGM Inc., United Tile, Cesar Chavez Foundation and accounting firm Ferri & Co. all signed subleases running through Fremont's existing lease, which expires in 2007. Fremont, a workers' compensation insurer, was put under state conservatorship in June.

Burbank's vacancy rate declined to 16.6 percent, down from 17.6 percent in the previous quarter. Brokers have noticed a soft commercial market in Burbank, were net absorption was 47,322 square feet, down from 200,859 square feet in the previous quarter.

Crown Realty & Development acquired the 137,000 square foot office building at 1935 Buena Vista St. in Burbank. Crown Realty is believed to have paid approximately $9 million for the vacant building that once served as the headquarters for the Warner Brothers Studio Retail Venture.

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