Pasadena and Burbank are running out of office space but, for the first time in memory, Glendale no longer appears to be the beneficiary of the overflow from its Tri-Cities neighbors.

Pasadena and Burbank would rank among the tightest office markets in the county if not for Glendale dragging them down due to its high vacancy rate.

In the past, tenants unable to find office space in Burbank and Pasadena would gravitate toward Glendale. But now the tenants are more likely to head farther east, according to some brokers.

Despite the exodus from Glendale, demand in the other two cities kept the Class A vacancies for the overall Tri-Cities at 9.1 percent in the first quarter, unchanged from the previous quarter. Rents remained relatively flat, dropping one cent to $2.59 per square foot, still above the $2.51 price of a year ago and historically high.

With a net increase of 53,091 square feet of office space back on the market in Glendale, the overall Tri-Cities market saw a net increase of 22,320 square feet in available office space.

With fewer options available in Burbank and Pasadena, absorption rates and rents were flat.

In Pasadena, vacancies dropped to 5.4 percent in the first quarter and rents were flat, at $2.62 per square foot, as the city absorbed 36,138 square feet.

Vacancies dropped slightly in Burbank to 7.3 percent and asking rents were stable at $2.74 per square foot. The area also added 5,367 square feet in available space, but is expected to absorb some of that in the second quarter, which would send vacancy rates down even further. The city has 225,000 square feet under construction, most already leased.

"I've been in the (Pasadena) market for 23 years and this is the tightest I've ever seen it," said R. Todd Doney, a vice chairman at CB Richard Ellis Group Inc. "The reality is there is really is no office space that's currently entitled or expected to start construction soon. So it could be three to four years before you see any new delivery of office space."

NAI Capital Executive Vice President David Powell described the Pasadena market as "tighter than a drum," but there were a few deals.

IndyMacBancorp Inc. added 90,000 square feet and will now lease a total of 180,000 square feet in the recently completed IndyMac Bank Center at 888 E. Walnut St. Inc. took 48,000 square feet for five years to bring the building to nearly 100 percent occupied.

Elsewhere, Centennial Medical Equipment Inc. signed a 5-year deal for 8,337 square feet at 888 N. Fair Oaks Ave. RTT USA Inc. took 3,478 square feet for three years and Dertad Teddy Bedjakian took 3,500 square feet for two years at 55 West Waverly. Law Offices of Schofield & Grossman snagged 2,889 square feet for eight years at $2.38 per square foot at 201 South Lake Ave.

Vacancy signs
With the imminent departure of Warner Bros. Entertainment Inc. and recent loss of the Disney Stores from Glendale, about 250,000 square feet will be dumped onto the market. Combined with other area exits, that will raise Glendale's vacancy rate from 14.7 percent to about 18 percent, with 1.1 million square feet available. The average rental rate rose to $2.49, up from $2.47 the previous quarter, but few are expecting that trend to continue.

"This will place tremendous pressure on rents in Glendale," said Grubb & Ellis Co. Associate Vice President Linda Lee. It will take two or three years for Glendale to recover from the losses, she said. The Disney Store will shift about 100,000 square feet to Pasadena, and Warner Bros. will take about 150,000 square feet of office space at a new Burbank development.

"All of the vacancy in Glendale will overshadow the leasing velocity this year," Lee said, "so that even though we're expected to lease 20,000 to 50,000 square feet, we're getting back 200,000. It will still look like we're losing absorption as opposed to gaining."

Although in years past, tenants unable to locate in Pasadena and Burbank would head to Glendale, recently they've started going further east down the Foothill (210) Freeway to get to the burgeoning labor pool in the east.

"Pasadena flows east and when it gets full, watch Monrovia and Arcadia go crazy," Powell said. "Our challenge right now is to find space for our clients. If you want a big chunk of space, there isn't one in Pasadena. The guys that do mixed use developments can pay a lot more than an office building developer can pay."

Some brokers suggested that a shift in the labor pool is hurting Glendale.

"Typically in the past, tenants would look at Glendale as an alternative," said Doney. "But because their labor pool is a little east, toward Arcadia, Ontario and San Bernardino, and there's a lot of new construction starting in Ontario, I think you'll see some pretty good activity over there."

Not everyone agrees.

ING Clarion Partners is banking on Glendale's resurgence. The real estate investment arm of ING Groep N.V. bought the 419,000 square foot office tower at 500 N. Brand in Glendale for $141 million, about $334 per square foot.

The Galleria Office Tower at 100 West Broadway provided another bright spot for Glendale. Glenwood Financial Inc. rented 8,496 square feet in a 5-year lease term at $2.11 per square foot, Optimax Financial Inc. took 3,517 square feet for five years at $2.14 per square foot and McLarens Young Int'l. rented 4,780 square feet for five years at $2.14 per square foot.

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