Commercial office experts in the Tri-Cities were asking the same thing in the third quarter: What the heck is going on in Glendale?
Vacancy rates in the lagging submarket were more than double the combined rates of Burbank and Pasadena, and yet the city still posted sales deals among the highest all year in L.A. County.
San Francisco-based Prudential Real Estate Investors paid a staggering $215 million, or $403.52 per square-foot, to Glendale Plaza Realty Holding Co. for Glendale Plaza, a 532,815 square-foot, nine-story high-rise at 655 N. Central Ave. And Maguire Properties bought a 138, 225-square-foot office tower at 701 N. Brand Blvd. The downtown L.A.-based real estate investment trust paid $45 million, or $325.56 per square-foot, to California Credit Union.
But according to David Doupe, managing director and West Coast team leader at Jones Lang LaSalle, the perceived "disconnect" in Glendale between sales and leasing is false.
"Insurance is the prime industry there, so when tenants vacate it's usually in big chunks of space," he said. Buyers like Glendale because "they can get quality product for less than it would cost to replicate it, which anywhere in L.A. is at least $500 per foot."
Still, vacancies in Glendale at 16.5 percent, were up sharply from 14.5 percent in the previous quarter. And the market gave back more than 124,000 square feet of space, leaving more than 1 million square feet vacant, according to Grubb & Ellis Co.
Warner Bros., which leased into Glendale as overflow from its Burbank base, vacated more than 44,000 square feet of space at 611 and 505 Brand Blvd.
In comparison, Burbank and Pasadena both bottomed out at 4.2 percent vacancies, dropping 1.7 points and half a point respectively, with Pasadena enjoying a record quarter.
Class A asking rents in Pasadena hit $3 per foot, up 21 cents from the previous quarter, and more than 40 cents higher than the same period last year. The submarket boasts a diverse mix of tenants, from Bank of America to Jacobs Engineering and Kaiser Permanente.
Guidance Software Inc. paced rentals in Pasadena, taking 32,025 square feet in the Ameron Center, 245 S. Los Robles Ave. at $2.45 gross for 65 months. Federal acquisition agency GSA signed on for 14, 856 square feet at the Koll Center, 1055 E. Colorado Blvd. for $3.50 per square foot full service gross in a short-term lease. The steep rents had brokers wondering if some tenants might seek other markets. Even Class B asking rents in the submarket shot up, hitting $2.56, 32 cents higher than the third quarter in 2005.
"There's going to be a tipping point where tenants are going to have to budget for higher rents to stay in Pasadena, and sub-tenants begin to look inward and consider a lower-cost alternative like Glendale," said Nico Vilgiate, senior vice president with CB Richard Ellis Group Inc.
Meanwhile, the Burbank submarket accounted for the majority of year-to-date absorption in the Tri-Cities, checking in with 367,630 square feet by the end of the third quarter. Vacancies were half of what they were a year ago. Asking rents were stable at $2.81 a foot, just 6 cents higher than the third quarter of 2005.
"Entertainment companies, like Paramount/Dreamworks and Warner Bros., have made solid commitments to third-party builders to keep vacancies in Burbank low," said Vilgiate. "Ten years ago they all headed to Glendale to fill their overflow space. Now, their needs are met in Burbank."
FremantleMedia leased the entire third and fourth floors, roughly 41,500 square feet, at 4000 W. Alameda Ave. in a relocation from Santa Monica. The 86-month lease was for $2.70 gross, with 3 percent annual increases. Film and video lab stalwarts Technicolor renewed its 21,982 square feet of flex space in Burbank for three years at 1103-1107 Isabel St. for $1.28 gross, with 3 percent annual increases.
Burbank sales were led by 175 E. Olive Ave. trading for $12.5 million. Universal City Studios Credit Union paid 5015 Clinton Suites LLC about $309 per square foot for the 40,542-square-foot building in downtown Burbank.
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