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Wednesday, Mar 27, 2024

Filling Nestle’s Big Footprint

Nestle USA’s announcement that it will move its U.S. headquarters out of one of Glendale’s prominent office buildings threatened to take a bit of the shine off the Jewel City’s recent rebirth. The subsidiary of Swiss food company Nestle S.A. revealed Feb. 1 that it plans to leave 800 N. Brand Blvd., its corporate home since 1990, for Rosslyn, Va. The company said the decision was made in response to the rapidly changing food industry and to be closer to most of its customers and stakeholders. The move is also part of a companywide consolidation plan. The announcement comes as Glendale has started getting the kind of attention from retailers, restaurants, apartment developers and office tenants that has reinvigorated other neighborhoods and cities – think Santa Monica and Playa Vista. Brokers cite falling vacancy rates and rising rents as evidence of the city’s stronger position. But then Nestle released its plan to leave, meaning that the nearly 380,000 square feet of the Class A office tower it takes will go back onto the market. The food company plans to start its exit later this year and finish by the end of 2018. “This is quite startling,” said Bill Boyd, senior managing director of Charles Dunn Co.’s Glendale office. “If all the space was vacated today, it would cause the current 10 percent vacancy to jump to a 16 percent vacancy (among the primary types of buildings in Glendale competing for tenants),” Boyd said. New normal Nestle currently occupies 15 floors – about 73 percent – of the 21-story Brand Boulevard tower, which was built in 1990 with about 518,000 square feet of space. That structure was typical of others going up at the time, as Glendale was in the midst of an office market boom, Boyd said. Employers were taking 300,000 square feet to 400,000 square feet of space a year. Fast forward to 2016 and 2017. Efficiency is the new game for employers, and that means fewer employees and much less office space, Boyd explained. As a result, tenants are now taking only about 300,000 square feet in the Tri-City markets annually and about 100,000 square feet a year in Glendale. Brokers say companies are moving into the city to be close to its newer lifestyle amenities – retail, restaurants and apartments. Leases from last quarter included entertainment firm Bunim/Murray Productions that took about 85,000 square feet; PSI Services, which signed for 25,000 square feet and Australia’s Cotton On Group, which leased 18,000 square feet, according to CBRE Group Inc. “There is a new tenant mix of media-related and post-production firms that want to be near Burbank but don’t want to spend the Burbank rents,” Boyd said. But they aren’t typically taking the hundreds of thousands of square feet that the city’s traditional financial, insurance and real estate servicers have, he added. Still, attracting newer and different types of companies has been a concerted effort by Glendale and its economic development agency since the Great Recession. Vacancy rates skyrocketed then because of troubles faced by banking and mortgage companies, many of which were in the city, said Darlene Sanchez, deputy director of the Glendale Economic Development Corp. “It was a big wakeup call to ensure we’re diversifying the types of tenants that are here,” Sanchez said. “The Council wants us to focus our strategies on that.” Upside Despite a seemingly emptier future for 800 N. Brand, there are upsides. For one, some of Nestle’s space already has been leased. Children’s Hospital Los Angeles, which currently rents two floors at the building, has agreed to take another two floors for administrative purposes and occupy them in the spring, the health care provider said. The tower’s owner, Piedmont Office Realty Trust Inc. of Johns Creek, Ga., reported in its four-quarter earnings report that Children’s Hospital signed a 10-year lease for 97,000 square feet in December. Piedmont commented on the impact to 800 N. Brand, saying that Nestle’s lease doesn’t expire till 2021. At that time, with the Children’s Hospital lease, the impact from Nestle’s departure would be about 66 percent, Piedmont added. The building has numerous features that tenants like, Boyd said, such as a prime location a block from the 134 freeway and access to two others; its centrality to L.A. County; proximity to multiple labor pools and amenities such as the Glendale Galleria and Americana at Brand – which employers use as recruitment tools. Asking rents – which average now at about $2.62 – will likely stop increasing. Landlords, in order to sign new leases and lease renewals, will probably increase the concessions they offer tenants, such as several months of free rent, and tenant improvement allowances, he added. “Currently, it’s an average of five months of free rent on a five-year (lease) term,” Boyd said. “That was starting to disappear. But with an increase in vacancy, that abatement could go easily to six or seven months.” Glendale sees an opportunity to secure a new prime tenant that it hopes will headquarter there, Sanchez said. The city has new initiatives to attract new industries, such as technology, and a plan to consider building a park over a portion of the 134 freeway near the building that could attract employers. Meanwhile, Nestle’s pending vacancy is getting attention. Her department is getting calls, and Sanchez has signed a nondisclosure agreement, she said. “I think because of the visibility and attractiveness of the building, and the media (attention), that it’s on people’s radar,” Sanchez said.

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