The Tri-City office market, consisting of non owner-user office space within buildings greater than 20,000 rentable square feet, within the Burbank, Glendale and Pasadena office submarkets, consisted of approximately 17.7 million rentable square feet as of the end of second quarter 2005.  The market added over half a million rentable square feet to its inventory since the end of 2004.  The majority of such additional inventory was contributed by the Burbank submarket.  As of the end of second quarter 2005, Burbank consisted of approximately 4.8 million rentable square feet, Glendale consisted of approximately 6.1 million rentable square feet and Pasadena consisted of approximately 6.8 million rentable square feet.  Over 500,000 rentable square feet of new development is still under construction.

As of the end of second quarter 2005, the Tri-City office market had the second lowest vacancy rate (including both direct and sublease office space) among the various office markets within Los Angeles County.  The Tri-City office market achieved a single-digit vacancy of 9.4%, decreasing from 10.5% the previous quarter ago, and 12.4% one year ago.  This drop in vacancy was primarily due to the strong leasing velocity of the Burbank and Pasadena office submarkets.  Burbank’s vacancy dropped from 14.8% one year ago to 11.1% after the first quarter 2005 and 8.4% as of the end of second quarter.  Pasadena continues to experience a decline in its vacancy as its vacancy dropped from 8.6% one year ago to 6.1% last quarter and 5.6% as of the end of second quarter.  Glendale continues to lag behind with its vacancy remaining at a stagnant 14.4% as of the end of second quarter 2005. 

The Tri-City office market experienced a positive net absorption of approximately 360,000 rentable square feet during the second quarter of 2005 with Burbank responsible for over 300,000 rentable square feet of positive absorption.  Pasadena had approximately 33,000 rentable square feet of positive absorption and Glendale experienced approximately 21,000 rentable square feet of positive absorption.  The 2005 second quarter’s performance was outstanding compared to the second quarter of 2004 where the market experienced a negative absorption (loss) of approximately 66,000 rentable square feet.  Year-to-date net absorption for 2005 within the Tri-City office market was over 400,000 rentable square feet, more than twice the year-to-date net absorption as of the end of second quarter 2004 thanks to Burbank’s 383,000 square feet of positive absorption and Pasadena’s 125,000 square feet of positive absorption.  Glendale experienced a year-to-date negative absorption of 104,000 square feet. 

Average annual asking rates for Class A office space in the Tri-City office market increased by approximately 3% from one year ago at $29.28 per rentable square foot per year to $30.24 per rentable square foot per year as of the end of second quarter 2005.  Average annual asking rates for Class B office space in the Tri-City office market stayed stagnant from one year ago at $24.84 per rentable square foot per year.  Burbank and Pasadena each experienced individual increases in average annual asking rates over the past year for both Class A and Class B office space.  As of the second quarter of 2005, Burbank’s average annual asking rates were $31.80 per rentable square foot per year for Class A office space and $22.32 per rentable square foot per year for Class B office space.  Pasadena’s average annual asking rates were $30.24 per rentable square foot per year for Class A office space and $25.56 per rentable square foot per year for Class B office space.  Glendale’s average annual asking rates were $29.16 per rentable square foot per year for Class A office space and $23.88 per rentable square foot per year for Class B office space. 

As of the end of second quarter 2005, the Tri-City office market had over 500,000 rentable square feet of new projects under construction and near completion.  Among those include The Pinnacle at Media Center Gardens project in Burbank that will deliver 225,000 square feet of new space to the market.  In Pasadena, the 233,000 square-foot Crown City Center project was near completion as well.  

While the Burbank and Pasadena office submarkets continue to tighten, some are hopeful that Glendale will benefit from the lack of office space in the adjacent submarkets.  However, the Glendale submarket has continued to have more companies leave the city than are coming to it.  Disney Stores, Inc. will relocate 125,000 square feet to Pasadena at the end of 2005 and Warner Bros. Entertainment will be relocating 150,000 square feet to Burbank at the end of the year as well.  By the end of the year, there will be over one million square feet of office space vacant in Glendale – the most the city has ever had in its history.  As the vacancy continues to rise, there will be tremendous pressure on office space rental rates.  The submarket is already seeing a decline in its average annual asking rents for Class B office space.  Unless Glendale sees a major positive change in its absorption, the average annual asking rents for Class A office space will be severely affected in the near future as well.

Linda P. Lee, Associate Vice President, Grubb & Ellis Company, Tel (213) 596-2277