Major Turnaround Seen in Area, With Burbank Taking the Lead
By RiSHAWN BIDDLE
With new deals bubbling up, the Tri-Cities market is performing better than it did last year, although the pace of activity varies in the respective Burbank, Glendale and Pasadena submarkets.
"It's a major turnaround from what happened last year," said Bill Boyd of Grubb & Ellis Co. "But Burbank really led the way in leasing, Glendale floundered and Pasadena is adding new buildings."
The fourth-quarter vacancy rate for the Tri-Cities was 12 percent, barely budging from the previous quarter, but lower than the 15.5 percent during the like year-earlier period, according to Grubb & Ellis.
Burbank was home to some of last year's biggest deals, but its pace of absorption slowed. The market absorbed 19,608 more square feet than became available during the fourth quarter, compared with net absorption of 201,898 square feet in the preceding three months. Vacancies stood at 11.7 percent in the fourth quarter, down from 12.1 percent in the third and 21.8 percent in the year-ago fourth period.
Phase One of the Pinnacle complex at 3300 W. Olive Ave. has accounted for at least half of Burbank's net absorption for most of the year, with deals that included the 193,000-square-foot lease taken by Time Warner Inc.'s soon-to-be divested music division. But it accounted for almost none of the action at the end of the year.
Instead the deals were at buildings such as Arden Realty Inc.'s 303 Glen Oaks Plaza, where Universal Studios took 17,000 square feet, and Clinton Suites LLC's 175 E. Olive Ave., where electronic trading outfit UNX Inc. added 20,200 square feet in a 70-month deal.
The question hanging over Burbank's office market is whether the growth will continue. Some speculate that the area's media giants, including Time Warner, Walt Disney Co. and Universal (being acquired by NBC parent General Electric Co.) may reduce their space.
The Glendale submarket absorbed 36,713 more square feet than it threw off during the fourth quarter, while the vacancy rate fell to 13.4 percent from 14 percent in the July-September period and 13.6 percent in the year-ago fourth quarter.
The market is stagnant, with little expansion. Instead, local tenants switched buildings thanks to the fierce competition among landlords who are offering rents as much as 20 percent below the average asking price. There was zero square footage under construction in Glendale by developers in the fourth quarter.
Pasadena on the other hand, is seeing a spate of new office construction. The added space contributed to negative net absorption of 46,621 square feet in the fourth quarter, compared with positive absorption of 27,511 square feet during the previous three months.
Driving the boomlet is expansion by banks and financial services firms, which make up the tenant base in the submarket, as well as government contractors working with the Jet Propulsion Laboratory.
Meanwhile in the investment market, deals are brisk as buyers continue to bid up prices.
Offices along Brand Boulevard in Glendale, for example, command as much as $300 per square-foot despite lackluster leasing activity.
Most of the fourth-quarter deals were smallish. The biggest one came out of Burbank, where M. David Paul Associates sold Phase One of the Pinnacle at 3300 W. Olive Ave. to a consortium led by Germany's Deutsche Bank.
In Pasadena, Kearney Real Estate Co. sold its remaining interest in the Pasadena Corporate Park to IndyMac Bancorp for $58 million, or $220 a square foot. The Countrywide Financial Corp. spin-off already occupies two-thirds of the 265,000-square-foot development.
In Glendale, insurance giant MetLife struck a deal to acquire 400 N. Brand Blvd. and its sister building at 450 N. Brand from GE's pension fund for $119 million.
Expect the activity to continue into the first quarter as more investors bet on an economic recovery and a number of deals made in December are finally closed. "There's a lot of money chasing after very little product. I've already begun listing a couple of new properties myself," said Scott Martin, a senior vice president at NAI Commercial.
- Universal Studios leased 17,000 square feet at Arden Realty's 303 Glen Oaks Plaza, one of two firms lured to the building during the quarter.
- Adelston Testen Brando leased 10,000 square feet at 505 Brand Blvd. in Glendale, owned by an affiliate of CB Richard Ellis.
- M. David Paul Associates sold Phase One of the Pinnacle at 3300 W. Olive to a consortium led by a unit of German banking giant Deutsche Bank.
- Kearney Real Estate Co. sold its remaining interest in Pasadena Corporate Park to IndyMac Bancorp for $58 million, or $220 a square foot. The Countrywide spin-off already occupies two-thirds of the 265,000- square-foot development.
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