Burbank, Pasadena lead market as vacancies continue to slide.

THE Burbank-Glendale-Pasadena market stayed hot in the fourth quarter as falling vacancy rates and rising average asking rents were dampened only slightly by slackening net absorption.

Tri-Cities vacancy rates in the October-December period slipped to 10.8 percent, from 11.3 percent in the prior period and 12 percent in the year-ago quarter, according to Grubb & Ellis Co.

The Burbank submarket made the greatest gains on the vacancy front, tightening to 12.9 percent in the fourth quarter from 13.8 percent in the prior period. Glendale's vacancy rate was 13.1 percent in the last quarter of the year, essentially flat from the prior period, while Pasadena tightened to 7.5 percent from 7.8 percent in the July-September period.

"The (Burbank) market has run out of space," said Carl Muhlstein, senior director at Cushman & Wakefield Inc. "There are very few blocks of space left until new construction."

Scott Martin, a senior vice president at NAI Capital Commercial, said that a healthy rebound in the construction and health care industries fueled the market. "Those are probably the two main industries that have been ramping up the growth," he said.

Andrew Feola, a director at Cushman, said activity in the entertainment industry contributed to the vacancy rate drop in Burbank. He said that activity signaled a recovery from a pullback from the 2000 to 2002 period, "when things from the entertainment industries' perspective remained pretty flat."

Burbank's Media Studios North, in the 3300 block of Empire Avenue, saw two of the county's biggest leases of the year, both struck in the final quarter of 2004.

After an intense courtship by three developers, Yahoo Inc.'s Overture unit signed a deal for a 300,000-square-foot build-to-suit project to be developed by M. David Paul & Associates. The deal's value was said to be in excess of $110 million.

GE Capital entered a 10-year lease with an estimated value of $60 million for 200,000 square feet.

Fourth quarter average asking rates for Class-A Burbank space were $2.60 per square foot, down from the $2.63 in the prior quarter.

Although Pasadena's shrinking vacancy rate didn't decline as fast as Burbank's in the last October-December quarter, it has fallen from 11 percent since the year-ago period, "Pasadena has experienced the most radical change in occupancy," Feola said.

Average asking rents in the submarket were $2.42, up a penny from the July-September quarter.

Overflow from Pasadena and Burbank helped bring vacancies down in Glendale, Feola said, but Bill Boyd, executive vice president at Grubb & Ellis, characterized the vacancy and net absorption figures in the Glendale market as "consistently stagnant."

"It has unfortunately had tenants vacate office space and not renew or relocate from the market at about the same pace that new tenants have come to the market," said Boyd.

Martin added that slow growth in the insurance industry has hurt the Glendale submarket. Once the insurance industry turns profitable, he said Glendale has "high quality, high image space" to accommodate expansion.

Glendale had 3,336 square feet of net absorption in the fourth quarter, taking 18,840 square feet off the market over the course of the year.

Average asking rents inched up by 3 cents to $2.44 in the October-December quarter, but Boyd said effective rates were lower as landlords were still throwing in sweeteners such as six months of free rent to draw tenants.

In the tighter Pasadena and Burbank submarkets, Muhlstein said such sweeteners have virtually disappeared.

Pressure on Burbank rents kicked up average asking rents by 7 cents a foot from the year-ago period, fueled in part by the tightening caused with the consolidation of large firms like Clear Channel Communications Inc., which bolstered its Burbank occupancy.

In Glendale, there was little movement in rental or vacancy rates over the course of the year. Boyd said that it was the victim of the outsourcing of back office uses such as loan processing.

In upcoming quarters, Boyd speculated that rents will rise in Glendale because there is little available space. He added that more square footage will be available in Pasadena and Burbank, pushing the vacancy rates higher in those cities.

But Martin was skeptical that more space would become available, further constricting the Pasadena and Burbank markets.

For developers, he said, "Finding quality locations that will pick up the need of the market as well as getting the political backing is very difficult."

In other moves, State Compensation Insurance Fund leased 51,745 square feet on two floors at the 2400 block of Empire Avenue in Glendale, and Unum Provident opted to retain 90,000 square feet at 655 N. Central Ave.

Major Events:

* The Overture unit of Yahoo Inc. signed a deal for a 300,O00-square-foot build-to-suit project to be developed by M. David Paul & Associates. The deal's value was said to be in excess of $110 million.

* GE Capital entered into a 10-year lease with an estimated value of $60 million for 200,000 square feet at Media Studios North.

* The State Compensation Insurance Fund leased 51,745 square feet on two floors at the 2400 block of Empire Avenue in Glendale.

* Unum Provident renewed its lease for 90,000 square feet at 655 N. Central Ave.

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