The Tri-Cities market improved across the board in the third quarter, as vacancies fell in Pasadena, Glendale and Burbank while average asking rates and absorption rose.

"Tenant activity is picking up," said Nico Vilgiate, first vice president of CB Richard Ellis Inc. "The overall economy and tenant base for this region is diverse and is on the rebound."

Vacancy rates fell to 11.3 percent in the third quarter from 12.4 percent in the previous three months and 12.1 percent in the year-ago period, according to Grubb & Ellis Co.

As demand rose, landlords notched up asking rates, with Class-A rising to $2.47 per square foot in the third quarter from $2.44 in the April-June period. Class-B rates inched up 1 cent to $2.08 per square foot from $2.07 in the first.

Net absorption totaled 197,726 square feet, fueled by new deals and small expansions.

"We're seeing a lot of organic growth within tenants already in the market and that's absorbing a lot of space," said Andy Feola, a director at Cushman & Wakefield Inc.

Pasadena remained the most active segment of the market. Vacancy rates fell to 7.8 percent in the third quarter from 8.6 percent in the previous three months and 10.3 percent in the year-ago period. Net absorption totaled 53,491 square feet in the third quarter, up from 48,617 square feet in the second.

Average asking rates for Class-A space rose to $2.41 per square foot in the third quarter, a 3 cent sequential gain.

Pasadena continues to draw interest due to its access to labor, freeway convenience, proximity to downtown L.A. and arrival of new office product on the market, said Bill Boyd, managing director and executive vice president with Grubb & Ellis.

Vilgiate cites Crown City Center, under construction at 203 N. Lake Ave., as a sign of tenant competition. The 225,000-square-foot building is being built by Investment Development Services with no pre-lease commitments, Vilgiate said. It is slated for completion in 2005.

In the quarter's only significant lease transaction, the U.S. General Services Administration took 19,299 square feet at Pasadena Towers (800 E. Colorado Blvd.) in a 10-year lease for undisclosed terms.

Also, Hague Family Inter-Vivos Revocable sold its 8,556-square-foot building at 975 E. Green St. to Green Cat LLC for $1.8 million.

Glendale and Burbank

After languishing for the past 18 months, "Glendale is now seeing the light at the end of the tunnel," Feola said. "We're seeing more tenants poking around."

Vacancies fell to 13.2 percent in the third quarter from 14.8 percent in the second, and net absorption totaled more than 100,000 square feet.

Yet with year-to-date net absorption negligible, it's still too early to call a recovery. "This is causing landlords to be more competitive to secure the few tenant requirements that are in the market," Boyd said.

Most of the leasing activity was from existing small tenants renewing or moving to other buildings, brokers said. In the only major lease of the quarter, Transportation Insurance Brokers restructured its 16,000-square-foot lease at 425 W. Broadway for $2 million.

Sales activity slowed. Verdugo Hills Hospital sold the 106,579-square-foot Verdugo Hills Professional Buildings at 1808 and 1818 Verdugo Blvd. to LaSalle Investment Management for $14.2 million in the only Glendale transaction.

Burbank netted the Tri-Cities' biggest lease deal. WMC Mortgage will relocate from Woodland Hills to 200,000 square feet at 3100 Thornton Ave. in a 10-year, $60-million lease.

Burbank's office vacancy rates also fell, to 13.8 percent in the third quarter from 14.8 percent in the second. The vacancy rate remains well above the 11.7 percent recorded in the fourth quarter of 2003. "Burbank is chipping away at vacancy, despite the high vacancy in the Media District," Feola said.

Average Class-A asking rents rose to $2.63 per square foot in the third quarter, versus $2.59 in the second.

Two large projects are under construction near the airport: Media Studios Phase 4 (online in April 2005) and Pinnacle Phase 2 (online in November 2005).

Other significant transactions included SFX Entertainment Inc.'s sale of the 26,225-square-foot office building at 120 N. Victory Blvd. to the Dr. Inger W. Jensen Living Trust for an undisclosed sum. Douglas Emmett & Co. sold the office building at 2901 W. Alameda Ave. to 2901 Alameda Associates LLC for $39.5 million. The 116,000-square-foot building is fully leased to Liberty Livewire.

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