Tri-City tenant brokers wondered if the first quarter of 2008 was the yin to 2007's first quarter yang.
One year ago, rents were soaring past $3 a square foot in Pasadena and the vacancy rate was just 5.3 percent, second only to Burbank. Glendale, meanwhile, sat empty. No more.
Grubb & Ellis Co. reported Glendale was the only submarket with lowered vacancies in the first quarter, dropping its 14.7 percent rate of one year ago by one percentage point. Over in Pasadena, tenants heaped 149,423 square feet back on the market, as vacancies rose to 12 percent from 10.1 percent.
Even bullish Pasadena landlords were raising the white flag, as Class A rents fell 44 cents to $3.50 per square foot from $3.94. Pasadena's struggles are a direct impact of the mortgage crisis: IndyMac Bank and Countrywide Home Loans put large blocks of space back on the market at the end of last year.
Burbank didn't fare much better. Net absorption was in the red by almost 100,000 square feet, and vacancies, while still low at 5.7 percent, climbed nearly two points from the past quarter.
"Part of this cycle is due to the cost of office space in Glendale, relative to Burbank and Pasadena," said John McAniff, managing director with Jones Lang LaSalle. "Tenants, who are brand new to Southern California, are now choosing Glendale."
Rick Caruso's much touted 475,000-square-foot, mixed-use project, Americana at Brand, which opens in May, has boosted Glendale absorption. Leasing activity at 505 N. Brand Blvd., adjacent to the Americana site, was brisk. Radiology administrators firm, American Imaging Management, signed on for the entire ninth floor, 23,191 square feet, in a long-term deal valued at $5.8 million.
Tri-Cities investors didn't read the relative lags in the Pasadena and Burbank markets as any serious threat. Sale deals included Beverly Hills-based fund managers Kennedy Wilson Group coughing up more than $94 million to Arden Realty Inc. for three downtown Burbank buildings on the same block. Kennedy Wilson reps said the parcels have a strong upside due to lower-than-market in-place rents, and numerous deals expiring within a few years.
Office Market At a Glance
Inventory: 18.6 million square feet
Under Construction: 817,400 square feet
Class A Asking Rents: $3.11
- 505 N. Brand in Glendale, a 16-story 320,000-square-foot office tower, had more than $6 million in leasing. Highlights include American Imaging Management signing on with LaSalle Investment Management for 23,191 square feet in a long-term deal valued at $5.8 million. The subsidiary of Indiana-based WellPoint Inc. is new to the SoCal market.
- DreamWorks Animation LLC leased 47,325 square feet at 101 N. Brand Blvd. in Glendale. The three-year deal will likely serve as swing space while the company makes over portions of its Glendale campus, at 1000 South Flower St. Landlord Legacy Partners did not disclose consideration.
- Foster City-based Legacy Partners bought a 104,466-square-foot Class A office tower at 70 South Lake Ave. in the heart of Pasadena's business district. Terms from the seller, Arden Realty Inc., were not disclosed, but asking rates at the 11-story site start at $3.75 a foot, full-service gross. Legacy Partners plans major capital improvements to the building this year, and experts said the price tag was likely in the mid-$300 million range.
- On the heels of a $610 million sale to Douglas Emmett Inc., Arden Realty disposed of three more assets, all on the same block in downtown Burbank. Beverly Hills-based Kennedy Wilson Fund Management Group shelled out $94.1 million for more than 325,000 square feet. Two of the three parcels, 303 N. Glenoaks Blvd. and 333 N. Glenoaks Blvd., are 98 percent leased, with the third property, Burbank Executive Plaza, at 300 E. Magnolia Blvd., about 40 percent vacant. Arden's parent, GE Capital, provided acquisition financing.
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