By: Linda P. Lee
Glendale Trailing Neighbors with 16.5% Vacancy Rate
The Tri-Cities office market (consisting of Burbank, Pasadena and Glendale) ended 2006 with an 8.2% vacancy rate and 348,000 rentable square feet of positive net absorption within the 18.5 million rentable square feet of non owner-user office space within buildings greater than 20,000 rentable square feet. Burbank led the market with 402,000 square feet of net absorption and Pasadena experienced 87,000 square feet of net absorption for the year. Glendale “lost” tenants during 2006 and experienced a “negative absorption” of 141,000 rentable square feet.
Glendale’s inability to attract tenants is inconsistent with its historical popularity. However, Glendale also had a negative absorption of 70,000 rentable square feet in 2005 while Burbank had a positive net absorption of 482,000 rentable square feet and Pasadena at 240,000 rentable square feet, respectively. At the beginning of 2007, Glendale had a 16.5% vacancy (within its 6.1 million square foot base) with Burbank at 3.6% vacancy and Pasadena at 4.7% vacancy.
“Glendale is expected to rebound in 2007”, said Jack Keyser, chief economist for the Los Angeles County Economic Development Council. “We expect that Glendale will benefit from the lack of available space within its two neighboring cities,” Keyser said.
Although Burbank led the market in positive absorption for the quarter as well as the year, it was Pasadena that led the market in asking rents. At the end of 2006, average asking rents for Class A office space in Pasadena was $3.18 for per rentable square foot per month on a full service gross basis, Burbank was at $3.01 per rentable square foot per month and Glendale was $2.58 per rentable square foot per month. In a unique twist on historic market dynamics, Glendale’s quoted rental rate ($2.58 per square foot per month) is an increase from the $2.47 average last year although the market continued to soften (increased vacancy) through all of last year. Some ownership of buildings that have recently been purchased are quoting higher rents that are in concert with the purchase price of those buildings regardless of the market’s vacancy.
Average asking rents for Class B office space in Pasadena was $2.78 per rentable square foot per month, Burbank was $2.45 per rentable square foot per month and Glendale was $2.30 per rentable square foot per month as of the end of the 2006. All of the submarkets within the Tri-Cities office market experienced increases in average asking rents from the previous quarter. Two quarters ago, the Tri-Cities office market had experienced, for the first time in its history, one of its submarkets reaching $3.00 per rentable square foot in asking rents. Now, two of its submarkets have surpassed the $3.00 threshold. It is truly significant and an indication of the strength of the Burbank and Pasadena office submarkets.
With such lack of space available in its neighboring submarkets, Glendale will be poised to attract a majority of the requirements within the Tri-Cities office market over the next couple of years. Glendale has yet to see significant activity from tenants outside of the submarket. So far, most of the growth and leasing activity within Glendale has been from its existing tenants such as PCL Construction, Inc. at 700 N. Central Avenue, Glenwood Financial Group at 100 West Broadway and more recently, United Healthcare at 505 N. Brand Avenue.
Unfortunately, as Disney and Warner Bros. both continue to vacate more space in Glendale, Glendale’s vacancy in the immediate future will continue to increase despite whatever lease transactions that will occur. However, a historical retrospective look at Glendale and the Tri-Cities office market indicates that the overall market will be more balanced over the next two to three years as Glendale absorbs the requirements that cannot be accommodated in either of its neighboring submarkets.
Linda P. Lee, Vice President, Grubb & Ellis Company, 445 S. Figueroa St – Suite 3300, Los Angeles, CA90071
Tel 213-596-2277 Fax 213-488-0819