Burbank Leads Tri-Cities To Strong End Of 2016

The market rebounded this quarter with positive demand after two straight quarters of negative absorption. Vacancy likewise dropped as 2 major move-ins in Burbank filled large chunks of vacant space. Strong leasing activity in the three core markets of Burbank, Glendale and Pasadena and a gradual rise in rents still indicates overall confidence in the market.

Four of the five submarkets saw increases in rates, leading to a net gain of $0.04 PSF monthly overall. Investment activity stayed steady with 3 major sales occurring, spread throughout the Tri-Cities. For investors, sizable discount to replacement cost and rents below peak levels are helping to fuel activity, along with a varied tenant base for the market.

Key Takeaways:

  • The Tri-Cities office market saw vacancy decrease from 14.2% to 13.0%, the largest decrease since third quarter of 2015. Absorption recorded a robust positive 266,300 SF, with Burbank being the primary driver.

  • Rents continued to ascend, landing at an average monthly asking rate of $2.92 per square foot (PSF) Full Service Gross (FSG). Up 3.1% year-over-year, this marks ten straight quarters of increases.

  • Leasing activity in the Tri-Cities recorded 637,400 square feet (SF), up 74.1% from last quarter’s total of 366,100 SF.

  • There were no new construction deliveries this quarter, and there are no new projects currently under construction.

  • Investment activity continued with momentum in the fourth quarter. The largest transaction was Beacon Capital Partners acquiring 101 N. Brand Blvd. in Glendale from Prudential Financial, Inc. for $128.3 million.

Outlook:

The Tri-Cities market continues to be an attractive market for tenants from a variety of industries. Large blocks of space still remain in some of the core submarkets, such as Pasadena and Burbank, at a price discount relative to other markets in the Greater Los Angeles region. It is expected that the Tri-Cities market will remain relatively insulated against large shifts in the market due to a combination of modest tenant demand and a scarcity of new available construction. While the outlook remains positive overall, it should be noted that the Tri-Cities market is not seeing the types of gains in rental rate velocity nor demand it saw in 2015 and 2016.