Small Deals Fuel Activity as Large Projects Wait in Wings.

LEASING activity in the Tri-cities area was fed by a handful of small deals in the third quarter, and with a large amount of space set to come to market, developers are starting to rethink some of the office projects they have in the works.

Despite an overall Burbank-Glendale-Pasadena market that tightened by a nearly full point -- to 10.8 percent from 11.7 percent in the second quarter -- vacancies still were substantially greater than the 7.5 percent recorded in the like-year earlier quarter, according to Grubb & Ellis Co.

Plus, more than 1 million square feet will come on line in the next year.

The July-September period had only one nominally significant deal: Arthur J. Gallagher & Co.'s 10-year, 46,000 square foot lease for two floors at 505 Brand Blvd. in Glendale.

Among the projects set to come on the market in the near future are Menlo Properties' 130,000 s square foot Empire Center and phase one of M. David Paul & Associates' 395,000-square foot Pinnacle project at 3300 and 3400 W. Olive Ave. in Burbank.

Paul already has put phase four of its Media Studios North project at 3333 Empire Ave. in Burbank on hold until the 91,000-square-foot third phase has been completely leased.

On Oct. 16 Trammell Crow completed its Airport Plaza project at 2950 N. Hollywood Way, adding another 150,000 square feet to the market.

To the extent that the market did tighten, it was dominated by smaller deals. The Los Angeles Area Formation Commission moved its executive offices to 2,000 square feet at 700 N. Central Avenue in Glendale. And Reliance Standard Life Insurance Co. leased 3,000 square feet at 150 S. Los Robles Ave. in Pasadena.

"There weren't many big deals (last quarter)," said Bill Boyd, senior vice president at Grubb & Ellis. "Most have been two and three thousand foot (leases)." On the bright side, Boyd said he expects to see at least a few larger leases signed in the fourth quarter. "There are a few law firms looking at space in the 5,000 to 10,000 square foot range," he said.

While the market had slowed prior to Sept. 11, the attacks seemed to have put an exclamation mark on an ailing sector.

"We had noticed fewer tenants in the market at the start of the third quarter," said Boyd. "What I'd extrapolate from that is that the lack of leasing activity right now is not necessarily due to the attacks. The market had already been slowing."

The third quarter was also characterized by a bit of price slashing. Asking rent dropped to $2.33 per square foot from $2.53 the previous quarter. In the third quarter of 2000, asking rent in the Tri-Cities area was $2.42 a square foot.

Boyd attributed the drop in price to the presence of a large amount of sublease space on the market, which he said "is providing office space up to 25 percent less than the direct office space rents."

"As vacancy drops the rents will begin show the effect by rising again," said Boyd. "(But) we don't expect that until the middle of 2002."

"It was a little slower than usual," said Carl Anderson, a vice president at Trammell Crow Co. "But some larger tenants are looking for space and I think we'll see positive absorption in the fourth quarter."

With economic conditions uncertain and a market teetering on overbuilding, many projects face reconfiguration. The former Glendale Federal building at 401 N. Brand Blvd., at Lexington Avenue, was in the process of being refurbished for office use, but is now being considered for a hotel project.

Another project, at 800 N. Central Ave. in Glendale, was planned as a 300,000 square foot office building by Reliance Development Group Inc., though it too is being revised to become a hotel project.

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Tri-Cities

Major Events:

* IndyMac Bancorp Inc. signed a 10-year lease.

* Arthur J. Gallagher & Co. signed a 10-year, 46,000-square-foot lease on two floors at 505 Brand Blvd. in Glendale.

* Trammell Crow completed its 150,000 square foot Airport Plaza project at 2950 N. Hollywood Way.

* M. David Paul & Associates put phase four of its Media Studios North project at 3333 Empire Ave. in Burbank on hold.

* Los Angeles Area Formation Commission moved their executive offices to 2,000 square feet at 700 N. Central Avenue in Glendale.