Flurry of first quarter dealing pulls submarket out of its funk. (Real Estate Quarterly--Tri-Cities).

THINGS are finally looking up for the Tri-Cities real estate market, thanks to a flurry of first quarter negotiations that has begun to pull the area out of a 12-month slump.

Plummeting vacancy rates, along with higher sales and leasing activity, helped the market bounce back from dismal 2002 year-end figures.

Vacancy rates for the broader Burbank, Pasadena and Glendale area were 13.5 percent, according to Grubb & Ellis Co., down from 155 percent for the fourth quarter of 2002 but still up from 125 percent for the year-ago period.

In another encouraging sign, net absorption totaled 374,609 square feet in the first quarter, compared with negative net absorption of 118,227 square feet in the fourth quarter of 2002 and 155,934 square feet in the year-ago quarter. It was the first time net absorption turned positive since the second quarter of 2002.

"The market is showing signs of stabilization primarily due the consolidation of the entertainment industry in Burbank," said Nico Vilgiate, a director at Insignia/ESG.

The slowing of new construction and subleases, which had been driving vacancy rates upwards of 20 percent in Burbank last quarter, reflects part of that stabilization. NO new construction came on the market during the first quarter.

"Demand has continued to grow across the board, especially in Burbank and Pasadena where larger deals are taking place' said Shaun Stiles, senior vice president at Colliers Seeley International.

Sales looking up

Clear Channel Communications Inc.'s early first quarter deal was just one element of the promising turn. Adding to the 212,000 square feet already secured by Warner Music and NBC last year, the San Antonio-based media company consolidated its eight Los Angeles-area radio stations with a 95,000-square-foot lease in M. David Paul Associates' Pinnacle project at 3300W. Olive Ave. in Burbank.

Another sign of a turnaround: a number of investors are looking to buy into thearea's Class-A office towers.

Tishman Speyer Properties is in the final stages of negotiations with Beacon Capital Partners to acquire the 465,000-square-foot Tower, at 3900 W. Alameda Ave. in Burbank, for approximately $115 million, or $247 a foot.

Another Burbank trophy building, 36-story 10 Universal City Plaza, is receiving significant interest from the institutional market.

That transaction, combined with the Beacon sale and Wells Real Estate Fund's $157 million purchase of the 505,000-square-foot Nestle building in Glendale in the fourth quarter of last year, could bode well, according to real estate brokers.

With new product being leased at high rates (the Pinnacle project is asking about $3 a square foot), asking rents have also managed to inch their way back up. Last quarter, average asking rents were $2.40 per foot for Class-A space, down from 10 cents from the previous year. But over the course of the last few months, as more space was absorbed, asking rents saw a 5-cent gain.

Glendare was the only market to see an increase in vacancy figures, which inched up to 14.8 percent from 13.6 percent in the fourth quarter of 2002 and 12.8 percent in the year ago period.

It was also the only Tri-Cities submarket to show negative net absorption, at 50,436 square feet. American Realty Advisors, for example, vacated its 15,000 square feet office at 700 N. ,Brand Blvd. in Glendale and signed a lease for 19,000 square feet at 801 N. Brand Blvd., registering a net gain of only 4,000 square feet.

The biggest deal of the quarter was the lease agreement in which Stewart Title signed up for 43,547 square feet at the former IHOP Corp. headquarters at 525 N. Brand Blvd. Also in Glendale, American Express leased 10,000 square feet at 330 N. Brand Blvd.

Pasadena, the tightest of the three markets with a 9.3 percent vacancy rate and a diverse tenant base, saw a healthy amount of activity. IndyMac Bancorp Inc. tacked on an additional 31,000 square feet of office space at Phase II of the Pasadena Corporate. Park at 3465 E. Foothill Blvd., increasing its total coverage to more than 170,000 square feet.

Also in Pasadena, HealthNet signed a lease for 12,000 square feet at 1055 E. Colorado Blvd., Guidanee Software inked a deal for 27,000 square feet at Walnut Plaza, 215 N. Marengo Ave., and Modern Healthcare leased 24,000 square feet at 110 E. Huntington Drive.

Pasadena still leads the market with more than 321,000 square feet under construction, all of which is left over from ground broken last year.

Maguire Partners' 250,000-square-foot Western Asset Plaza, half of which is already leased to Westem Asset Management, is slated for completion in January 2004.

Meanwhile, Champion Development's mixed-use, 70,000-square-foot, four-story building at 175 S. Lake Ave. in Pasadena is well underway. The $45 million project, which will house offices, retail and residential space, is expected to be finished in fourth quarter of this year.

RELATED ARTICLES: Major Events:

* Clear Channel Communications Inc. signed a 12-year lease for 95000 square feet at the Pinnacle at 3300W. Olive Ave. in Burbank. The lease is valued at $45 million.

* Stewart Title inked a lease at the 43,547-square-foot former IHOP Corp. headquarters at 525 N. Brand Blvd. in Glendale.

* IndyMac Bancorp expanded its presence in East Pasadena by taking an additional 31,000 square feet at Phase II of the Pasadena Corporate Park at 3465 E. Foothill Blvd. -- increasing the mortgage lender's total tenancy there to over 170,000 square feet.

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