Tri-Cities office market tightens as quake-displaced tenants move in.

The Tri-Cities office market say significant activity in the first quarter of 1994. So heavy was the activity, in fact, that brokers said the area is tighter than it has been in years.

Much of the first-quarter activity came on the heels of the Jan. 17 earthquake, which sent displaced San Fernando Valley tenants scrambling for office space in nearby markets.

The post-quake activity helped sustain the tightness of the Burbank Media District submarket. The plans that many motion picture studios had to expand "on campus" were expected to leave huge vacancies in the "off-campus" Burbank Media District office towers.

Specifically, Studio Plaza and The Tower anticipated having blocks of space available when Sony Pictures Entertainment and Warner Bros., respectively, moved out of those two "off-campus" buildings and onto new facilities on their expanded studio lots. Those consolidations were expected to significantly increase the Media District's office vacancy rate. But several developments have forestalled that rise.

At The Tower, a building on Alameda Avenue in Burbank, Warner Bros. was expected to vacate 200,000 square feet when its studio lot expansion was complete. In a surprise move, another of The Tower's tenants, the Walt Disney Co., informed the building's owners that Disney planned to exercise an option to expand into much of the Warner space.

Disney's announcement bumped UniHealth America out of the running for space in The Tower. That health care company was in negotiations with The Tower to move into the former Warner Bros. space. But UniHealth is now back out on the market searching for an alternative site in the area.

Now, Tri-Cities brokers expect UniHealth to sign on for 100,000 square feet at Studio Plaza, as Sony continues its slow, gradual relocation to Culver City.

Studio Plaza also got a boost from the Jan. 17 Northridge earthquake, as tenants fled the quake-damaged portions of the San Fernando Valley for the less earthquake-damaged Burbank area. The exodus helped Studio Plaza fill an additional 100,000 square feet of space. The biggest of those moves came when both the Motion Picture Association of America and the Alliance of Motion Picture & Television Producers relocated to a combined 50,000 square feet in Studio Plaza from their joint earthquake-damaged headquarters in Encino. Other earthquake-forced moves to Studio Plaza included Warner Bros. Records and Sony's film distribution affiliate Triumph Releasing Corp.

As a result of those relocations, large blocks of available space have disappeared from the Burbank Media District. In fact, according to quarter-end statistics provided by commercial brokerage firm Wilrock National Inc., the Media District's direct vacancy rate now stands at just over 5 percent. The Burbank submarket as a whole had an overall office vacancy rate of 9.12 percent at the end of the first quarter.

Likewise, Glendale was a beneficiary of earthquake-related leasing activity. The office absorption rate in Glendale was 43,321 square feet of space. That means 43,321 more square feet of office space was occupied than vacated over the quarter. Glendale's vacancy rate had plummeted to 12.5 percent by the end of the first quarter from 15.7 percent at the end of 1993, reported commercial brokerage Grubb & Ellis Co.

Federal agencies such as Federal Emergency Management Agency took up space in the Tri-Cities area. Insurance companies, such as State Farm Insurance, also moved into temporary space in the Glendale area to work on earthquake-related claims.

"The 330 N. Brand building, for example, has gotten a lot of activity due to the earthquake," said Laura O'Brien, a broker with CB Commercial Real Estate Group Inc. "This building has virtually been taken off the market, and it had close to 200,000 square feet available prior to the earthquake."

Office space in Glendale is in such high demand, according to O'Brien, that brokers are in a situation where they are negotiating with two or three tenants who want to move into the same available office space. "We are not quite sure how to respond to that demand," she said.

"There are small blocks of space available," said Seth Dudley of brokerage firm Julien J. Studley Inc. "But you just can't find spaces of 20,000 square feet or more." Brokers are hoping the fact that the market is firming up may mean rental rates will be on the upswing in the Tri-Cities area soon. Dudley predicted that by year's end there would be about a 10-percent increase in rental rates in the area.

The lack of large blocks of space is also bolstering the belief that the Tri-Cities market may see some construction activity in the near future. MacNeal-Schwendler Corp., a computer software company presently headquartered in the Eagle Rock section of Los Angeles, is presently scouting the Tri-Cities for new office space and is considering a build-to-suit as an option, according to O'Brien.

Dudley mentioned that, if negotiations fail between UniHealth and Studio Plaza, he would not be surprised if UniHealth also chose to pursue a build-to-suit.

Two trends, outside of recent earthquake-related activity, have been fueling the leasing activity in the Tri-Cities market. They are: the movement of companies from Mid-Wilshire to Tri-Cities and the movement of entertainment companies from Hollywood to Tri-Cities. Both trends continue at a decent clip and should provide the area with absorption in months to come, sources said.

Although relocations from Mid-Wilshire to the Tri-Cities is slowing down, there is clearly still interest from companies located in Mid-Wilshire to move out to Burbank, Glendale and Pasadena. Pitney Bowes, for example, is hoping to move out to Glendale from its current address in Mid-Wilshire. O'Brien said she is also working with a foreign airline that has its U.S. office in Mid-Wilshire but it considering a possible relocation to Pasadena. The sizes of the deals are smaller than in the past, but the trend carries on.

The strength of the entertainment industry continues to provide Tri-Cities brokers and landlords with a lot of activity. Saban Entertainment, currently housed at 4000 Alameda Ave. in Burbank, is expected to soon be in need of additional space. Group W Productions is considering a move either to the Burbank area or to Beverly Hills from its present location on Barham Boulevard near Universal City.

Perhaps more importantly, however, is the appearance of a few new faces in the Tri-Cities. Both Maxicare Health Plans Inc. and Pacific Bell Directory are each on the hunt for 150,000 square feet and are seriously considering the Tri-Cities area. Pacific Bell is also considering locations in the South Bay and El Segundo area. Maxicare is moving out from downtown Los Angeles and Pacific Bell is relocating from the Mid-Wilshire district.

Pasadena was apparently left out of the loop when earthquake victims went looking for temporary or permanent space after the temblor. For the first quarter, the Pasadena office submarket had negative net absorption of 5,611 square feet. That caused the submarket's office vacancy rate to jump to 13.9 percent, up from 12.3 percent at the end of 1993.