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Tuesday, Jun 6, 2023

Talk of High Rise Conversion Raises Hopes in Flagging Market

Both Burbank and Glendale office markets saw some positive momentum in the fourth quarter, but not enough to counteract poor performance earlier in the year. Burbank, in particular, had a rough year with a historically high vacancy rate created by Walt Disney Co. putting nearly 450,000 square feet back on the market due to a planned move out of an entire building. Average Class A asking rents reflected that, sliding 5 cents to $3.04 from $3.09 in third quarter, according to data provided by the Los Angeles office of Colliers International. However, there was a bit of good news for the submarket, long a strong regional hub for L.A.’s entertainment industry: Its vacancy rate declined in the quarter by five-tenths of a percent to 20.1 percent, as more than 35,000 square feet were taken off the market. Also, there were a couple of potential bright spots on the horizon for the submarket. One is an anticipated increase in demand rippling east to Burbank from a large third-quarter sale in the San Fernando Valley. Comcast Corp.’s purchase of 10 Universal City Plaza for its own use by its NBCUniversal subsidiary is expected to send current tenants of the building scurrying for new space in nearby Burbank. Another possibility that would wipe a large amount of space off the market is talk that Alameda Tower, which formerly housed Walt Disney Co., may be converted to residential housing, or even a mixed-use hotel and residential property. At this point, no firm plans have been announced. The Glendale submarket also brightened in fourth quarter, with vacancy declining a full percentage point to 21.5 percent. Continuing a trend, rents went up 3 cents to $2.51. Upward pressure on rents in Glendale likely reflects rate increases in neighboring Pasadena, where rents have been climbing steadily. The market absorbed nearly 60,000 square feet in the final quarter, reversing a nearly 20,000-square-foot loss in third quarter. But for all of last year, Glendale saw only 6,400 square feet taken off the market. “Seeing positive absorption in the fourth quarter is encouraging, but taken over the whole year it’s not as good. In the short-term, you can be optimistic and hope that fourth-quarter trends are going to continue,” said William R. Boyd Jr., senior managing director of brokerage services at Charles Dunn Co. There was a good deal of leasing activity in the city, with major tenants such as Nestle USA and Cigna Corp. renewing long-term leases. But some of the movement during the year stemmed from a kind of shuffling of the deck chairs, as landlords competed for the same group of back-office tenants. “For instance, Hutchinson and Bloodgood moved from 101 North Brand Avenue to 550 North Brand Avenue because they got a better deal up the street. The rental rate that the accounting firm will pay in the 10th year of a 10-year lease is less than what they’re paying now,” Boyd said. “And the dire news for landlords is that there is no immediate end in sight. For tenants, 2013 was another outstanding year for them to take advantage of deals in the marketplace.” Still, the city is seeing significant revitalization of its retail centers and nearly 3,000 units of residential housing are under construction or recently completed downtown. “We did a good job in the mid-2000s, setting ourselves up for what we thought would be a continued growth economy,” said Philip Lanzafame, Glendale’s director of economic development. “Although the market did tank, we are well-situated for a rebound now.” The hope is that with enhanced amenities downtown, and plentiful local housing, Glendale’s attractive lease rates will attract additional office users in coming years. – Karen Klein – Main Events Health care insurer Cigna Corp. agreed to a six year extension of its lease in Glendale. The Bloomfield, Conn. firm renewed its 78,000-square-foot lease at 400 N. Brand Blvd. in a deal estimated to be worth about $11.5 million. Cigna is the largest tenant in the 177,000-square-foot building and employs about 300 people on site, according to CoStar Group Inc. The building is about 80 percent leased. Long-time Glendale tenant Nestle USA renewed its 400,892-square-foot lease at 800 N. Brand Blvd., its corporate headquarters. The move extends its lease on the freeway-adjacent building with high-visibility signage until 2021. Plaza de La Canada, a 96,000-square-foot retail center in La Canada Flintridge, sold for $35.9 million. The three-property center at 647-663 Foothill Blvd. was bought by Retail Opportunity Investments Corp. of Purchase, N.Y. from Vons, a unit of Safeway Inc. of Pleasanton. The center will be anchored by a Gelson’s Market, which is replacing Vons. It is expected to open this quarter. Other major tenants in the fully leased center include T.J. Maxx and Rite Aid. Holland Partner Group of Vancouver, Wash. bought an acre of land in Glendale for redevelopment. The seller was Pioneer Industries Inc. of Los Angeles. The 130-144 N. Central Ave. retail property was in escrow for about 300 days awaiting approval from the Glendale City Council for a large mixed-use project, which Holland plans to begin after the current tenants’ leases expire. Tenants at the 23,700-square-foot retail building are Sit ‘N Sleep and Big 5 Sporting Goods. A 22,000-square-foot industrial building in Burbank sold in October for $3.7 million. IML Property CA LLC of Salt Lake City bought the Class B building at 7655 N. San Fernando Road from Walter Burbank LLC of Lafayette. The building was constructed in 2006 and is fully leased. -Burbank Office Market At a Glance Inventory: 6.83 million square feet Under Construction: 0 Class A Asking Rents: $3.04 -Glendale Office Market At a Glance Inventory: 6.2 million square feet Under Construction: 0 Class A Asking Rents: $2.51

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