Vacancies up in Glendale, down in Burbank

Glendale and Burbank are going different directions when it comes to commercial real estate.

The vacancy rate in prime Glendale commercial buildings climbed to 23.6% in the fourth quarter of 2010, up 4.5% from a year earlier, according to Grubb & Ellis Research Services. Vacancies rose 0.6% from the 23% vacancy rate in the third quarter of 2010.

At the same time, commercial vacancies in Burbank dropped from 19% to 17.7% in the fourth quarter. Occupancy is now nearly the same as it was in December 2009, when the vacancy rate was 17.8%.

Brokers and others say Burbank is benefiting from a boost in the entertainment industry, while Glendale continues to suffer from its reliance on financial firms and government tenants, which have been shedding jobs.

“The Glendale market has been challenging, to say the least, for the last decade,” said Linda Lee, a broker with Charles Dunn Co..

She mentioned a list of firms that have pulled out of Glendale over the years — Fremont Compensation Insurance Group, Baxter Healthcare Corp., and most recently the State Compensation Insurance Fund, which announced last month that it will move 500 jobs and abandon six floors of space at the 25-story Unum building by fall 2012.

“We will continue to experience negative absorption as those bodies are moving out,” she said.

The market stalled a few years after a spurt of office construction on Brand Boulevard and near the Ventura (134) Freeway.

Paul Habibi, a real estate professor at the UCLA Anderson School of Management, said Glendale had a strong development cycle in the last decade, “so there is a natural influx of supply that is yet to be absorbed.”

Mark Miller of Glendale’s Stevenson Real Estate Services said he saw interest from potential commercial tenants pick up toward the end of 2010, but he is expecting a long year.

“I think we’re going to see owners become more aggressive in trying to make deals,” Miller said.

In Glendale, asking rents dropped from $2.75 per square foot at the end of 2009 to $2.64 per square foot at the end of 2010, according to Grubb & Ellis.

“As unemployment drops a little bit, we might see some movement. But I think we are going to remain flat for the next year,” Miller said.

Burbank saw positive signs at two underutilized buildings. Burbank-based post-production firm Modern VideoFilm Inc. expanded into new space at 2300 W. Empire Ave. Payroll firm Cast & Crew Entertainment is also moving into the building, which opened in 2009.

Outlook Entertainment, which got its start creating Psychic Friends Network commercials, has occupied the entire fourth floor of 2900 W. Alameda Ave., the 14-story blue glass building known as The Pointe. CB Richard Ellis’ Todd Doney said other deals are in the works for tenants of the building.

The Los Angeles-based broker also said he expects in the coming months that the Walt Disney Co. and Warner Bros. will lease a substantial amount of the city’s vacant office space.

Gary Olson, president of the Burbank Chamber of Commerce, said those two buildings opened empty and stayed that way for a long time.

“With those two developments, everything got skewed, and the office vacancy rate jumped immensely,” Olson said.

Now things are turning around. California’s entertainment industry gained 14,000 jobs in 2010, according to the state Employment Development Department, an 11% jump, and Burbank is feeling the benefit.

“We have more than 880 media-related companies in the city, and it is great to see the existing companies growing and expanding into new space,” said Mary Hamzoian, Burbank’s economic development manager.

The smaller companies come “to be close to the big names,” including Warner Bros. and the Walt Disney Co., and they end up creating clusters of talent near the geographic heart of the industry, Hamzoian added.

“Burbank is close, safe and centrally located,” she said.

Miller, of Stevenson Real Estate in Glendale, noted that Glendale benefits with “spillover” commercial tenants when the Burbank market heats up. But with Burbank’s vacancy rate still in the high teens, those days are a ways off.

“Commercial real estate in totality is still pretty bleak,” Olson said. “But the movement is in the right direction.”