Lower rents fail to push down vacancy rates in mixed market. (Real Estate Quarterly Tri-Cities).

VACANCY rates inched upward even as asking rents dropped in the Tri-Cities during the third quarter, but the historic strength of the submarket gave hope that a market shift was near.

Vacancy figures for the broader Burbank, Pasadena and Glendale area snuck up by 0.8 percent, to 14.8 percent, according to Grubb & Ellis Co. Net absorption figures remain in the red, as 178,734 more square feet came on the market than were taken off through lease deals. Still, those numbers are significantly stronger than the year-ago period, when net absorption was negative 262,303 square feet.

"The good news for this quarter is that no new product was added. The inventory remained unchanged," said Nico Vilgiate, a director at Insignia/ESG.

The recent economic downturn has slowed absorption in Burbank, said Bill Boyd, vice president of Grubb & Ellis. But, he added, other factors were at play.

"Burbank has the highest vacancies because it has brought on a tremendous amount of space in the last two quarters' he said. "The percentage of vacant office space is at an historic high, especially given previous single digit vacancy numbers."

To the extent there was tightening in the market, it came in Glendale, where there was no new product under construction and the market tightened slightly. Vacancies fell to 12.5 percent from 12.9 in the previous quarter.

Both Burbank and Pasadena, with 195,000 and 321,000 square feet under construction, respectively, saw vacancies rise. Burbank's rate is now 21.4 percent, up from 20.2 percent in the second quarter, and Pasadena's is 12.2 percent, up from 102 percent.

The biggest Burbank deal in the quarter was the sale of the 27,000-square-foot Western headquarters of Black Entertainment Television.

Crown Realty sold the building, part of the Gateway at Burbank mixed-use project, to Menlo Trust U.T.I. for $5.6 million in a deal brokered by Marcus & Millichap.

On the leasing front, the Media Studios North building, at 2233 Ontario St., saw an expansion deal by Technicolor, which upped its requirement to 55,000 square feet from 33,000, according to Brad Feld, executive director at Cushman & Wakefield Inc.

Pasadena picks up

Sporting the lowest vacancy in the submarket, Pasadena made further progress with some encouraging activity.

Vilgiate at Insignia/ESG reported a late third quarter lease expansion and extension for Physician's Associates at 199 Los Robles Drive. The 28,105 square feet space in one of Pasadena's better buildings was valued at approximately $5 million.

Construction began this quarter on Western Asset Plaza, formerly named Plaza Las Fuentes II. MaguirePartners signed Western Asset Management to a 10-year pre-lease agreement for 155,000 square feet of office space in Pasadena. The project is scheduled for completion in January 2004.

Pepperdlne lease

Pepperdine University just signed a 6,500-square-foot lease for approximately $1 million at Pasadena Towers, according to Shaun Stiles, senior vice president at Colliers Seeley International.

In the same building, at 800 E. Colorado St., P&D Consultants signed on for 8,000 square feet in a deal valued at $1.2 million. The other half of Pasadena Towers, an identical 9-story building at 55 South Lake St., saw a third quarter renewal from insurance giant New York Life. The 11,000-square-foot deal was valued at $1.6 million. Each of the leases at Pasadena Towers were five-year leases.

Asking rents for Class-A buildings in Pasadena slipped by 5 cents, to $2.29 per square foot, from the level of the previous quarter.

At the other end of the spectrum, Glendale, a haven for financial companies as an appealing location for west and central Los Angeles County and San Gabriel Valley, has had sluggish growth across the board.

"The market is still experiencing some of the so-called downsizing, right-sizing," said Boyd. "But given the cycles of the Tn-City market, most would assume that it will return to historical normal conditions'

One glimmer of hope in Glendale was the sale of a 123,000 square foot building at 225 West Broadway that traded hands for approximately $21 million.

Much sublease space came aboard the Glendale market in the second quarter, causing some landlords to lower rents.

The good news is that there is no new construction underway, which has agents looking for increased activity in the coming months.

"Although we haven't had the same action as one, two years ago," said R. Todd Doney, executive managing director at Insignia/ESG, "I think we will have a pretty good fourth quarter and first quarter (of 2003) for leasing space."

Major Events:

* MaguirePartners began construction on Western Asset Plaza, formerly Plaza Las Fuentes II, in Pasadena. Western Asset Management has pre-leased 155,000 square feet. Completion is slated for January 2004.

* Crown Realty sold the western offices of Black Entertainment Television to Menlo Trust, U.T.I. for $5.65 million.

* Physician's Associates renewed and expanded its ease at 199 Las Robles Drive. It now takes 28,105 square feet in a deal valued at approximately $5 million.

* Technicolor expanded its lease to 55000 square feet at the media studios Nose Building at 2233 Ontario St. in Borbares.

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