Strong Sales Activity Persists in Second Quarter

The market continued 2017 on a slight rebound as demand was positive for the second time in five quarters. Vacancy slid accordingly due to demand in Class A properties across the market. Glendale will see vacancy jump by midyear due to Nestle USA’s relocation. Because of this relocation and others in Pasadena, sublease inventory will increase as tenants begin to vacate. Rents continued to rise, however, on the strength of Class A properties.

Investment activity was widespread, with Glendale seeing its ninth and tenth Class A properties traded in the last 2 years. 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:

  • Overall vacancy in the Tri-Cities office market decreased in second quarter from 13.5% to 13.3%. Absorption recorded positive 61,100 square feet (SF) primarily driven by Pasadena and Burbank.

  • The average monthly asking rate ascended by $0.03 to $2.99 per square foot (PSF) Full Service Gross (FSG). Up 4.3% year-over-year, this marks twelve straight quarters of increases.

  • Leasing activity in the Tri-Cities recorded 383,700 SF, up almost 84,000 SF from last quarter.

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

  • Investment activity continued with momentum in the second quarter. In the largest transaction, Kennedy-Wilson Properties, Ltd. acquired 400-450 N. Brand Blvd. in Glendale from MetLife, Inc. for $144.0 million ($329 PSF).

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. A scarcity of new available construction might not be able to counter modest tenant demand. The market was subject to downsizing and relocations out of market this quarter. That trend has the potential to continue going forward.