Pasadena's long-dormant office market, for years overshadowed by the city's extraordinary retail renaissance, has quietly emerged since the recession as one of the strongest in the Los Angeles basin.
"Pasadena has made the biggest comeback of all the Los Angeles-area office markets after languishing in double-digit vacancy for many years," said Glendale real estate broker Bill Boyd of Grubb & Ellis.
"Pasadena has always been the most prestigious market of the three" cities of Burbank, Glendale and Pasadena, said broker R. Todd Doney of Insignia/ESG.
The vacancy rate for the city's 5.8-million-square-foot office market stood at 9% at the end of the second quarter, down from 10.6% in the first quarter and more than 11% two years ago, according to research firm CoStar. A vacancy rate of less than 10% is generally considered healthy--perhaps even a sign that it might be time to start building more space.
Pasadena is probably overlooked as an office hot spot in part because of the high-profile entertainment and media growth in Burbank and Glendale. In addition, Pasadena officials adopted a slow-growth stance in the early 1990s that earned the city a reputation for having a less-than-friendly business climate.
Furthermore, "there was a period of time when the city made companies take their names off the tops of buildings," Boyd recalled.
Glendale, meanwhile, was going out of its way to accommodate business, Doney said. But he describes Pasadena today as "very business-friendly."
The city is attracting developers and investors who see opportunity in the office market.
Among them is Century City-based Kearny Real Estate Co., which bought three office buildings on an 8-acre site along Halstead Avenue near the 210 Freeway late last year and is renovating them in a $30-million project.
Others include Newport Beach-based Koll Development Co., which plans to begin construction in September on a 171,000-square-foot speculative project at 1021 E. Colorado Blvd., and Foster City, Calif.-based Legacy Partners, which acquired the former 48-acre site of Ambassador College from the Worldwide Church of God earlier this year.
Spieker Properties Inc., a Menlo Park, Calif.-based real estate investment trust, has acquired four office buildings totaling 631,000 square feet in the city in recent years and is keeping them almost 100% leased, it said. Spieker is not sure, though, if the market is ready for speculative new development.
Kearny is stripping two of the buildings at its site "down to the bare bones" and is razing a third to add more open space and create a more campus-like setting, said David Simon, a Kearny senior vice president.
One of the buildings is scheduled to be completed early next year, and another by the end of 2000. The two buildings, each three stories, will have a combined total of about 250,000 square feet. Kearny expects to have both fully leased within a year after their completion, Simon said.
"There are a lot of corporate users in Pasadena who would like to expand but don't have a lot of places to go," Simon said. "Besides the traditional office users, the Internet firms, the software developers who work with [Jet Propulsion Laboratory] and other new companies are growing too."
Kearny chose renovation rather than new construction because the company can get its buildings on the market sooner and less expensively, Simon added. The land and construction costs of the renovation project will total about $120 per square foot, compared with $180 to $200 per square foot for new construction.
Besides, land for new construction is hard to find in Pasadena, Simon said.
Koll's project in downtown Pasadena will be the first speculative office building started there in nine years, according to Gary Toeller, a Koll partner.
Toeller said Koll has razed a former auto dealership and expects to begin construction Sept. 1, with the building to be completed in late 2000.
Toeller said Koll believes that demand specifically for downtown space is strong. The downtown vacancy rate is about 6.6%, he said.
Spieker Properties is not quite so sanguine. "We looked at some sites in Pasadena and have considered speculative development, but we haven't been able to make the economics work," said John Davenport, a Spieker partner.
Whether a market is ready for speculative space depends on whether rental income is high enough to justify new construction. Koll's intention to build speculative space and Spieker's hesitation mean the two firms, both experienced real estate developers, have differing views as to whether rents in Pasadena can support new building.
As for the former Ambassador College site, it appears that any office construction there is a ways off.
According to Bill Shubin, a Legacy partner, the company expects to build some office space on the property, along with apartments, a hotel and conference center, senior housing and ground-floor retail space. The amount of office space to be built is a long way from being decided, however, Shubin said, although he added that Legacy has already heard from a number of prospective tenants.