This time, Burbank was the star of the Tri-Cities commercial real estate market.
Showing off the most rent growth and greatest absorption, the city outpaced a still-lively Pasadena office market and a lagging Glendale though brokers say that the city may finally be ready for a turnaround as its sister markets fill up.
The vacancy rate in Burbank fell a tenth of a point from the second quarter to 8.3 percent, while absorbing 60,404 feet of space and sending Class-A asking rents up 10 cents, to $2.75. Pasadena saw its vacancy rate rise to 6.7 percent from 5.6 percent, but it absorbed 53,768 feet of space and Class-A rents rose six cents to $2.59, according to Grubb & Ellis Co.
"Pasadena and Burbank were the best-performing markets," said Shaun Stiles, a broker with Colliers-Seeley International. "These two submarkets have been stronger than Glendale lately due to low vacancies, continued steady demand by users and good market fundamentals."
Overall, the Tri-Cities market saw its vacancy rate rise to 10 percent from 9.4 percent in the second quarter, hampered by the doldrums in Glendale, where the market gave back 34,827 square feet as the vacancy rate rose six tenths of a point to 15 percent.
The biggest deal in Burbank was at 3300 W. Olive St. where Warner Brothers Entertainment took the entire 230,000-square-foot Phase 2 of the Pinnacle in a 15-year, $100-million deal.
At $2.41 per square foot, the deal was priced well below the asking rate of $2.75 per square foot for Class-A buildings. Nearby, DreamWorks SKG took 35,000 square feet for back-office operations at 4000 W. Alameda St. in a five-year, $6-million transaction.
Investors also showed interest. Behringer Harvard, a Dallas-based REIT, bought the 115,130-square-foot Buena Vista Plaza office project at 2411 W. Olive Ave. from Ryanco Partners Ltd. No. X for around $33 million. The Media District property is 100 percent occupied.
"The dramatic and voracious appetite of the entertainment industry is not only cause for the absorption, but the corresponding increase in rental rates," said Bill Boyd, executive vice president and managing director at Grubb & Ellis. "They want to be in Burbank, they want the best buildings and they're willing to pay for them."
Things also were hot in Pasadena, where landlords raised average asking rates even for Class-B buildings, which were renting for $2.26, an increase of 13 cents over the prior quarter.
The large jump in Class-B rates is attributed to the lack of Class-A space and the continuing cachet of a Pasadena address. "Class-B landlords see it's time for them to make a little money," said Carl Anderson, senior vice president with Grubb & Ellis.
There were two leases of note, both renewals. First Quadrant, an asset management firm, renewed for 22,564 square feet at Pasadena Towers I. Terms were not reported. University of Phoenix renewed and expanded at 299 N. Euclid Ave. in a seven-year, $8-million deal.
Low vacancies and increasing rents also enticed buyers. Broadreach Capital Partners picked up the 231,000-square-foot Pasadena Tech Center building at 465 Halstead St. for $39.3 million from Limar Realty Group.
Meanwhile, despite the rise in vacancy rates, some brokers see the market in Glendale improving in the near future. "It's starting to look up for Glendale," said Patrick Church, first vice president with CB Richard Ellis Group Inc. "A lot of bigger deals in the market don't have anywhere else to go."
Until then, buyers are taking advantage of comparatively affordable pricing. Principal Global Investors LLC bought the 350,000-square-foot building at 101 N. Brand Blvd. from Tishman Speyer Properties Inc. for $110 million. The building is about two-thirds vacant.
LaSalle Investment Management Inc. is slated to purchase 505 N. Brand Blvd. from CB Richard Ellis Investors for around $116 million. The 15-story, 338,310-square-foot building is 84 percent leased. Also coming on the market are 500 N. Central Ave. and 501 N. Orange Ave. LBA Realty LLC is asking $40 million for the pair.
Alexander Wadley, an associate with Lee & Associates, sees a different fuel for the turnaround. "City officials and landlords are probably going to start having conversations about how to get people back into the city," he said. "I think we'll start to see the city make incentives for companies. It might take a few quarters to do that."
Though no significant departures were noted, several smaller tenants vacated more than 56,000 square feet of space, pushing net absorption to negative 34,287 square feet. And Warner Bros. is expected to move some of its entertainment division employees out of the submarket by year-end.
The largest lease transaction was a sublease. Fidelity Financial Corp. took 26,000 square feet at 800 N. Brand Blvd. for $2.5 million, in the former Nestle USA space.
"It will just take one or two deals going down and the market will change overnight," Church said. "There are a lot of deals floating, but they have to land."
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