Office vacancy rates in the Tri-Cities of Burbank, Glendale and Pasadena have dropped to the single digits over the past year, sending rents upward and pushing several new developments.
If all goes according to schedule, construction could commence next month in Glendale on L.A. County's first new office tower in more than five years.
It's a 24-story, 500,000-square-foot building at 655 N. Central Ave. The developers are PacTen Partners and Morgan Stanley & Co., who purchased the land from K. Young Inc.
K. Young originally wanted to develop the site on its own but later had to abandoned those plans when its parent firm, Kunyoung Group of Korea, ran into financial difficulties.
PacTen and Morgan Stanley are moving ahead with the project despite a lack of prelease agreements because of low vacancy rates in the Tri-Cities, especially Burbank and Glendale.
Overall office vacancies in the Tri-Cities stood at 7.7 percent in the second quarter of 1997, up slightly from 7.2 percent in the first quarter, but a two percentage point improvement over the second quarter of 1996, according to Grubb & Ellis Co.
Within the Tri-Cities, Burbank continued to post the lowest second quarter vacancy rate of 3.8 percent, while Glendale came in at 7.0 percent and Pasadena finished at 10.4 percent.
Several other developments also made progress towards eventual ground breakings in the second quarter, though none besides the PacTen project is expected to start construction this year.
Other Tri-Cities developments now on the drawing board include:
- A 650,000-square-foot office campus in North Burbank being developed by M. David Paul and Associates. M. David Paul recently purchased the 10-acre parcel for the development from the City of Burbank for $5.4 million.
- A three-building 585,000-square-foot office complex in Burbank's Media District being developed by J.H. Snyder & Co.
- A mixed-use office/retail/hotel complex being developed by Vestar Development Co. on 102 acres of land in North Burbank. Work on an environmental impact report for the project is slated to start next month.
- The Glendale City Center II project being developed at 111 N. Brand Blvd. in Glendale by Westmark Realty Advisors LLC. The project is slated for 360,000 square feet of office space and 20,000 square feet of retail.
In addition, the Glendale Redevelopment Agency has issued a request for proposals for companies interested in developing the land at 800 N. Central Ave. Proposals were due on July 18, and eight developers had expressed interest in the site. The land is currently occupied by a parking lot and a Conrads restaurant.
If developed, the project could yield another 365,000 square feet of office space to the Tri-Cities market.
Developers are looking at rising rents in the Glendale and Burbank markets and betting they charge rents in the $30 per-square-foot-per-year range for their new buildings, said Bill Boyd, a broker in the Glendale office of CB Commercial Real Estate Group.
As an example of rising rents on existing buildings, the same office space at 801 N. Brand Blvd. that rented for $25.50 per square foot a year ago would currently rent for as high as $27 per square foot, said Boyd.
He added that rents for existing space in Glendale and Burbank will probably continue to climb before hitting a ceiling at about $28 or $28.50 per square foot, when some of the new space coming on the market at $30 per square foot becomes more attractive.
Boyd said rising rents could also be a primary reason why Allstate Insurance Cos. pulled three buildings it owns in Glendale off the market during the second quarter. Allstate was in talks to sell the three buildings at 700 N. Central Ave., 801 N. Brand Blvd. and 100 Bruchette St. to Equity Office, when it decided not to proceed with the sale about two months ago, said Boyd.
"There was no official reason," Boyd said. "One can only assume that with increased activity in the marketplace and increasing rents, it must have made sense to hold onto them and wait for a later time."
Allstate officials did not return calls for comment.
Meanwhile, the Tri-Cities' biggest building sale in the second quarter came in June, when Walt Disney Co. purchased the 2 million-square-foot Grand Central Business Centre in Glendale for $140 million. The 100-acre center has been home to Disney's Imagineering theme park division since the unit's inception more than 30 years ago.
In a distant second, the only other major Tri-Cities building sale in the second quarter came in Pasadena on July 1, when Arden Realty Group Inc. purchased a 73,000-square-foot empty building at 299 N. Euclid Ave. for $100 per square foot.
In the leasing arena, major deals were relatively scarce in the second quarter due to the lack of large contiguous spaces on the market. The biggest deal came from Reliance Insurance, which leased 45,000 square feet at 700 N. Brand Blvd. In another significant deal, ASI Entertainment signed a nine-year lease for 23,000 square feet at Glendale City Center, 101 N. Brand Blvd.
Meanwhile, a major relocation deal in the Pasadena market involving 74,000 square feet of space is expected to close in the next few weeks. An informed source said the deal involves Cenfed Bank, which is currently based at 199 N. Lake Ave.
- Construction slated to begin on a 500,000-square-foot office tower at 655 N. Central Ave. in Glendale in August.
- M. David Paul and Associates purchases a 10-acre parcel in North Burbank from City of Burbank for $5.4 million. The firm is planning a 650,000-square-foot office campus for the site.
- City of Glendale puts out a request for proposals for the lot at 800 N. Central Ave. Eight developers have expressed interest in the site, which could be developed with up to 360,000 square feet of office space.
- After putting three buildings in Glendale up for sale, Allstate Insurance Cos. pulls all three off the market. The three buildings were located at 700 N. Central Ave., 801 N. Brand Blvd. and 100 Bruchette St.
- Walt Disney Co. purchases Grand Central Business Centre in Glendale for $140 million.
- Reliance Insurance leases 45,000 square feet of office space at 700 N. Brand Blvd. in Glendale.
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