Burbank Media District Faces Rising Vacancies : Real estate: The tight office market may have turbulent times as movie studios make plans to build, consolidate or relocate some offices.

The Burbank Media District: home to movie studios and entertainment companies of all kinds. A glitzy, glamorous business address--and until lately--a tough office market to wedge into unless your needs were modest.

Not anymore.

Looking to cut overhead expenses and consolidate their operations, several of Burbank’s biggest entertainment companies are moving, or at least thinking of moving, out of leased space in the Media District and into offices they own or intend to build. Real estate experts say the moves could push office vacancy rates in one of the nation’s tightest commercial markets into the mid-teens for the first time in more than three years.

Sony Pictures Entertainment, in the process of relocating to Culver City, has moved out of 200,000 square feet in the Media District’s shimmering Studio Plaza building. Warner Bros. may leave that much space or more behind in the Tower Burbank building a couple of years from now when it completes three new buildings near its Burbank studio. And the Walt Disney Co., which has leases expiring in 1994 and 1995 for 170,000 square feet in Tower Burbank, hasn’t decided if it will renew them or not.

All of which would mean turbulence for the usually steady Media District office market.

“We’re going to see a big softening there,” predicts Seth Dudley, a senior vice president in the Los Angeles office of the New York-based real estate firm Julien J. Studley Inc.

Early last year, a scant 3% of Media District office space was empty, he said. Since then, the vacancy rate has more than tripled to 10%, and “we could see it up over 15% by mid-1994.”

Despite the recent increase in vacancies, the Media District office market remains robust compared with most other areas. The east San Fernando Valley, which includes the Media District, plus Universal City, Studio City and Glendale, had a 17% office vacancy rate in the first three months of this year, according to a survey by commercial real estate broker Cushman & Wakefield of California Inc.

By comparison, the office vacancy rate for the entire Valley was 20% in the first quarter, down from 21% a year earlier, according to Studley. Meanwhile, the office vacancy rate for downtown Los Angeles in the first quarter was 24%.

Commercial real estate brokers say they think they will be able to fill the space expected to come onto the Burbank market--possibly 400,000 square feet or more--eventually. But they don’t know how long that could take.

One problem is that “this market is relatively shallow,” Dudley said. Although there are other kinds of businesses in the Media District, “there’s no logical tenant group waiting in line to take up the space when the big studios move out. So, a lot depends on the fortunes of the entertainment business and whether some of the smaller production companies come out of the recession healthy.”

In the past year, Sony has gradually moved people out of 200,000 square feet of leased offices in the Studio Plaza building to the former MGM studio complex in Culver City. Over the next few years, Sony will be moving the rest of its people in Studio Plaza--who occupy another 200,000 square feet of that building--to Culver City.

Sony has hired the Los Angeles office of New York-based Wilrock National Inc. to sublet the space. Wilrock Executive Vice President H. Carl Muhlstein said he’s had proposals so far from prospective tenants interested in anywhere from 6,000 square feet to as much as 150,000 square feet of the office space available. He noted that the Sony space is “the largest contiguous block of Class A space available between Glendale and Warner Center” in Woodland Hills.

Warner Bros. Inc., which is already building a 150,000-square-foot office building next to its Burbank studio, plans to begin construction this fall on two more office buildings nearby totaling 200,000 square feet.

When those facilities are completed, Warner may give up much of its leased space, including 207,000 square feet in the Tower Burbank building owned by Japan’s Tochikogyo USA Inc., said the Tower’s agent, Bill Boyd, a senior vice president in the Glendale office of Los Angeles-based CB Commercial Real Estate Group Inc.

“Warner has an option to terminate its Tower lease at the end of 1994,” Boyd said. “We aren’t actively marketing the space yet, however. While Warner has indicated publicly it would be vacating the building, it hasn’t given the owners formal notice.” Warner and Tochikogyo didn’t return several phone calls seeking comment.

Despite these changes, some real estate brokers are upbeat and say the studio departures will attract other major office tenants to Burbank that previously were squeezed out by the big entertainment concerns.

“It really hasn’t been a good situation there for the last two or three years. A client who wanted more than 10,000 square feet couldn’t get it,” said Chris Baer, a broker in the Sherman Oaks office of the real estate firm Grubb & Ellis.

Adds Boyd: “Historically, this has been a market that hasn’t had any trouble absorbing space. Between 1987 and 1990 it absorbed roughly 250,000 to 300,000 square feet a year. That rate only started to retreat in 1990 because there was no new construction.”

But Media District rents have dropped in the past 12 months as several major studios revealed plans to build their own offices, consolidate or relocate. A year ago, the rent on a 10-year lease was about $28 or $29 a square foot, according to Dudley. That rate has now fallen to about $25 or $26 a square foot.

Another uncertainty is what the Walt Disney Co. will do with some of its office space. Disney currently occupies more office space in Burbank than any other entertainment company, including 170,000 square feet in the Tower Burbank.

Disney’s David Malmuth, vice president of corporate real estate, said the company is still evaluating what to do when its Tower leases expire in the next couple of years. But he points out that Disney won the Burbank City Council’s approval last November to add as much as 2 million square feet of studio and office space at its 46-acre studio lot over the next 25 years.

The first phase of the Disney expansion, a 240,000-square-foot office building, is under construction. It should be finished by the end of 1994, Malmuth said, “so that gives us a lot of flexibility.” The new building will definitely house Disney Feature Animation Co., added Malmuth, which currently occupies 180,000 square feet of leased offices in Glendale.

How much of a slump the Media District could be in for as a result of these possible moves is anybody’s guess, said Bill Ripberger, director of the Woodland Hills office of Cushman & Wakefield. “Overnight, their creative people come up with some new project and, overnight, they have a tremendous need for new space.”