Vacancy Rates:  Burbank 4.0% Glendale 13.4% Pasadena 5.4%

The Tri-Cities office market (consisting of Burbank, Pasadena and Glendale) ended the second quarter of 2007 with a 7.6% vacancy rate and 16,500 square feet of positive net absorption within the 18.5 million square feet of non owner-user office space within buildings greater than 20,000 square feet. 

For two consecutive quarters, Glendale led the market with approximately 79,000 square feet of positive absorption.  Burbank experienced 55,000 square feet of negative absorption and Pasadena experienced 7,900 square feet of negative absorption.

As some had predicted in 2006, Glendale is benefiting from the lack of available office space in either of its neighboring submarkets.   With a vacancy rate of 4.0% in Burbank and 5.4% in Pasadena as of the end of the second quarter of 2007, that prediction is proving to be true.  Glendale ended the second quarter with a 13.4% vacancy rate, a significant decline from its previous vacancy rate of 14.7% during the first quarter of 2007 and an even steeper decline from a vacancy rate of 16.2% at the end of the fourth quarter of 2006.

Glendale has absorbed a total of 122,000 square feet during the first half of this year while its neighboring submarkets have a combined negative absorption of over 50,000 square feet.  It’s not surprising that Glendale is outperforming Burbank and Pasadena in leasing velocity as it features not only large blocks of contiguous office space (which both Burbank and Pasadena lacks), it also offers them at more affordable rental rates.

As of the end of second quarter 2007, the average asking rental rate for Class A office space in the Tri-Cities office market was $3.07 per square foot per month on a full service gross basis.  The average asking rental rate for Class B office space was $2.72.  Both Class A and Class B office space have seen tremendous growth over the last several quarters within the Tri-Cities office market and that trend is expected to continue.

2nd Quarter 2007

A Glance At History

The Tri-Cities office market has experienced a continued decline in vacancy since the end of 2002 where the vacancy was at its last peak of 15.5%.  The last time vacancy for the market reached its current low status was at the end of 2000.  At that time, there was 2.8 million square feet less inventory than now and the average rental rate for the market was $2.31 per square foot per month on a full service gross basis.  The market had absorbed over 500,000 square feet of office space in that entire year.

Fast forward to today, the market is once again at a 7.6% vacancy rate and the average rental rate is $2.99 per square foot per month with two of its submarkets, Burbank and Pasadena, reaching over $3.00 per square foot per month in average asking rates.  In just over six years, the market added and absorbed over 2.8 million square feet of inventory and experienced a 29.4% increase in its average rental rates.

In comparing the end of fourth quarter 2000 to the end of the 2^nd quarter of 2007, it is an interesting observation that Burbank continues to lead the market with the lowest vacancy rate.  In over the last six years, Burbank has added close to 1.7 million square feet of office space to its inventory and still manages to maintain a 4% vacancy rate.  This fact proves that the entertainment industry, that is so prevalent in Burbank, continues to be such a thriving force within the Tri-Cities office market.

In the same time frame, Pasadena has added approximately one million square feet as well to its inventory and its vacancy today also closely mirrors its 5.9% vacancy rate at the end of the 2000 compared to 5.4% today.

Glendale added only 100,000 square feet of new inventory to the market since that time but did not absorb it.  In fact, Glendale’s 13.4% vacancy rate today is higher than its 11.7% vacancy rate as of the end of fourth quarter 2000. 

If history is an indication of where the future will be, then Glendale is sure to see its vacancy rate decline even more in the near future.  All market factors indicate so. 

The one interesting difference between the end of 2000 and now is that Pasadena is ahead of Burbank in its average asking rates – making it the most expensive submarket within the Tri-Cities office market to lease office space.

Linda P. Lee, Vice President, Grubb & Ellis Company
445 S. Figueroa St – Suite 3300 Los Angeles, CA 90071 Tel 213-596-2277 Fax 213-488-0819