Sales and lease activity surged across the Tri-Cities market in the second quarter, with several large properties sold to institutional investors eager to take advantage of interest rates that remain at historical lows.
The activity, however, was not enough to move the needle much on the overall vacancy rate and asking rents remained relatively flat in the Glendale, Burbank and Pasadena submarkets quarter over quarter.
Burbank, where the office market gave back nearly a half-million square feet in the first quarter due to the planned move-out of Walt Disney Co. from Alameda Tower, returned an additional 40,000 square feet to the market in the second quarter. In the process, the city saw its vacancy rate rise to 20.7 percent from 20.2 percent the prior period. Quarter to quarter, Class A asking rents dropped to $3.36 per square foot from $3.39.
Despite recent trends, strong tenant demand is expected through the end of the year from media and entertainment companies that drive the Burbank submarket, said Natalie Bazarevitsch, senior managing director at CBRE Group Inc.
“We are looking for overall net-positive absorption by year’s end, with more activity translating into rents in the Tri-Cities market as a whole trending upwards about 5 percent over the next three years,” she added.
In Pasadena, sales and lease activity increased about 40 percent in the first half of 2013 as compared with a year earlier, said Carl E. Anderson, executive vice president at NAI Capital.
“We have already done more than 135 transactions, which is pretty exciting and definitely an indicator of the market,” he said.
The submarket absorbed 6,000 square feet of space and saw its first commercial speculative development – with no preleasing – in several years in the form of a 50,000-square-foot building at 1 W. Green St., which is due to be completed in the fourth quarter. In addition, the Playhouse Plaza project on Colorado Boulevard, which has languished since the recession started, received an equity infusion and is expected to begin construction in October on around 150,000 square feet of new Class A space.
There were multiple large lease deals in Glendale, with Avery Dennison Corp. (which sold its Pasadena headquarters in the first quarter), Union Bank and Travelers Insurance all taking space in the city, where asking rents have stayed nearly flat for two years.
Although the submarket absorbed 22,000 square feet in the second quarter, Glendale still has a significant amount of vacant space – more than 21 percent – that is being absorbed very slowly, said William R. Boyd Jr., senior managing director at Charles Dunn Co.
“The trend is encouraging, but at a rate of 22,000 feet net absorption per quarter, it’s frustrating. Even if we double that, to get to 10 percent vacancy at this current pace would take 14 years,” he said.
– Karen E. Klein
Main Events
A 422,500-square-foot Class A office building in Glendale sold for $96 million, the highest price paid per square foot in the city so far this year. Granite Properties Inc. acquired the 500 N. Brand Blvd. property June 13 from CBRE Global Investors.
Pasadena’s Plaza Las Fuentes, a 195,652-square-foot, two-building property, sold June 28 for $75 million. The sale included a 177,952-square-foot office building at 135 N. Los Robles Ave. and a 17,700-square-foot adjacent retail space. The land is owned by the city of Pasadena; MPG Office Trust Inc. sold the leasehold interest to East West Bancorp.
In mid-June, Hudson Pacific Properties closed on its $130 million purchase of Pinnacle II, at 3300 W. Olive Ave., in the heart of the Burbank media district. The 230,000-square-foot Class A building is fully leased.
The 11-story, 292,000-square-foot AT&T building at 177 E. Colorado Blvd. in Pasadena reportedly went into escrow late in the quarter to a real estate investment group based in Northern California. Terms of the deal were not disclosed.
Hutchinson & Bloodgood LLP, a 90-year-old accounting firm, will relocate to 18,000 square feet at 550 N. Brand Blvd. in Glendale in an expansion from 14,000 square feet at 101 N. Brand. The 12-year lease is reportedly worth more than $7 million.
Longtime Glendale tenant Carl Warren & Co. insurance adjustors signed a lease to relocate to 701 N. Brand Blvd. from 500 N. Central Ave. The lease, valued in excess of $2 million, represents an expansion from 10,000 square feet to 14,000 square feet.
