The Tri-Cities remained one of the tightest overall office markets in the region in the second quarter, despite a sky-high office vacancy rate in Glendale, which has seen the exodus of several major corporations.
Mergers, acquisitions and consolidations have driven major clients from Glendale to Burbank, Pasadena and the San Fernando Valley. But Linda Lee, associate vice president at Grubb & Ellis Co., believes it's only a matter of time until the Glendale market rebounds, in part due to the popularity of its neighbors.
"The neighboring markets are so low on vacancies that as companies' space requirements grow, it will most likely be to Glendale," Lee said.
Despite the soft market in Glendale, the overall area's second quarter vacancies were down to 8.3 percent, compared to 9.1 percent in the first quarter. Asking rents in the overall Tri-Cities were up to $2.64, compared to $2.59 in the first quarter and $2.52 a year ago.
The three cities absorbed 365,846 square feet, including Burbank's addition of 279,451 square feet. A large part of that came from Warner Bros. Entertainment Inc., which moved its remaining offices from Glendale to its headquarters in the Media District.
Vacancies in Burbank were at 5.9 percent, down from 7.3 percent in the first quarter as the city absorbed 284,818 square feet. Asking rents were down to $2.68 per square foot, from $2.74 the previous quarter.
Both Bon Choix Couture and Coralie J.F. Milburn leased space at 907 Victory Blvd. in Burbank. Both deals were for 1,500 square feet for 38 months at $1.50 per square foot without utilities and janitorial services.
Pasadena vacancies were down to 4.7 percent, compared with 5.4 percent last quarter. The city absorbed 54,941 square feet and rents were at $2.79, up from $2.62 in the first quarter.
The City of Pasadena rented 9,800 square feet at 1055 E. Colorado Blvd. for five years at $2.45 per square foot.
Two Pasadena accounting firms re-upped at 301 N. Lake Ave. Stanislawski and Harrison, Certified Public Accountants expanded its lease to 3,439 square feet for 75 months at $2.40 per square foot, and Hagen Streiff Newton & Oshiro, Accountants P.C. extended its lease of 3,050 square feet for another 36 months at $2.35 per square foot.
Glendale's vacancy rate was down slightly to 14.5 percent, from 14.7 percent the previous quarter, but brokers say the rate could go as high as 19 percent in the third quarter, when the departures of Warner Brothers and Hoop Retail Stores LLC's Disney Stores are reflected.
The city absorbed 17,087 square feet in the second quarter, although it has lost 36,004 square feet overall this year. On the positive side, asking rents were up to $2.53 from $2.49 in the previous quarter, thanks to a tighter overall Tri-Cities market.
"Glendale is going through an evolution from financial services and insurance to a big question mark," said Carl Muhlstein of Cushman & Wakefield Inc. "Many of the buildings were developed in the 1980s, catering to the savings and loan and insurance industries. Now there's a perception that the buildings have small floor plates and low parking ratios compared to other areas of the Tri-Cities."
Lee said Glendale's problems have been a combination of bad luck and strategic business decisions. The Disney Stores, for example, were sold and moved to Burbank.
"Burbank is a media center where media-related companies want to be, so it makes sense to move back," Lee said.
Glendale's problems began in 2002, Lee said. That's when Baxter Healthcare Corp. left 80,000 square feet of office space on the market to move to the West Valley. Fremont Compensation Insurance Co. left the city the same year, leaving an additional 150,000 square feet vacant.
There were a couple of bright spots for Glendale in the second quarter.
Kaiser Foundation Health Plan Inc. rented 24,160 square feet for five years at $2.40 per square foot at 101 N. Brand Blvd. The California Nurses Association expanded its 2,500 square-foot lease at 425 W. Broadway to four years at $1.92 per square foot. Baker Olson Lecroy & Danelian, a Law Corp., extended its lease of 6,449 square feet at 100 W. Broadway an additional 44 months at $2.25 per square foot.
The Archdiocese of Los Angeles bought a 1.3-acre church site at 1015 N. Central for $7.1 million. Several developers who intended to build condominiums showed interest in the 57,300-square-foot site, but the sellers favored the diocese.
Despite that decision, Muhlstein said Glendale is not seen as hostile to developers.
"Both Pasadena and Burbank have become difficult to develop in," he said, citing a change in the balance of power on the city councils. "I don't think those markets are going to get much new space. I think a lot of people in the Tri-Cities are looking to Glendale, but Hollywood is also on their radar screen."
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