Focus on East Valley Offices, Industrial Sites

During the third quarter, the Tri-Cities and San Fernando Valley office and industrial submarkets remained virtually flat, with little new product under construction on the horizon. According to Colliers International data, Burbank’s 6.97 million square feet of office inventory hovered at 12.6 percent vacancy, a nominal decline from 12.9 percent last quarter and 13.9 percent at the same time last year. Glendale’s 6.16 million square feet was down slightly at 16.7 percent vacancy from 17.6 percent last quarter and 19.9 percent last year. Industrial space in the east and central Valley has been nearly at zero for a year, with third quarter vacancy at 0.9 percent and 0.2 percent, respectively. The Business Journal spoke to a pair of brokers well versed in these markets to discuss what is behind those numbers. Burbank office Colliers International Executive Vice President Nico Vilgiate, based at his firm’s downtown Los Angeles headquarters, said the Tri-Cities, which includes Burbank and Glendale is a mature market. “The reality is that it’s not much change (on the macro),” Vilgiate said. However, he added, pay attention to the micro trends. “Burbank is close to single-digit vacancy,” Vilgiate said. “The fact is it already hit it in the Media District – that’s the pace bar of the market.” He noted that two of the biggest players in the market, Warner Bros. Entertainment and Walt Disney Co., recently signed leases for more than 250,000 square feet combined. The market trend not reflected in the third quarter numbers is the continuing movement of Hollywood companies coming over the hill for rent relief and for adjacency to other entertainment entities. “Once the dust settles, there’ll be only 4 percent vacancy (in Burbank),” Vilgiate said. “There’s hardly any space left in the Media District.” Some of the biggest deals to occur won’t register yet until Q4. Netflix just leased up 60,000 square feet at the under-renovation Burbank Studios, while Disney reclaimed 100,000 square feet of lease space in the Tower, at 3900 W. Alameda, that it had abandoned in 2013. Meanwhile, Warner Bros. has announced plans to build two office buildings, including one designed by architect Frank Gehry. “Suffice it to say, content continues to grow,” Vilgiate said, alluding to a slew of subscription streamers on the way, including Disney’s in November and WarnerMedia’s in early 2020. Glendale gold Glendale is a different scene than Burbank. “Glendale has made a lot of progress, but it still is a competitive environment,” Vilgiate said. “There is a first floor available in every building. … The difference now is there’s not multiple floors available.” Yet unlike entertainment-oriented Burbank, Glendale has a wider variety of tenant. Glendale, according to the broker, has seen more investment activity than all the rest of L.A. County. Among Glendale’s 14 office towers, a dozen, including 800 N. Brand Blvd. and 400 and 450 N. Brand Blvd., have traded over the last three years, which means “12 new sheriffs in town,” he said. As a result, landlords are competing to attract and retain tenants. “They’re trying to modernize the buildings to become a more enticing option,” Vilgiate said. “Most every building that has a new owner is contemplating or currently undergoing an amenity upgrade, hotel lobby experience, tenant communal areas or gyms.” Industrial-level reuse Scarcity is the theme in the Valley’s industrial market. “The story is obviously that there is no available land,” said Colliers International Senior Executive Vice President Gregory Barsamian, who is based in Glendale. “The only way you get something is get something (existing) and tear it down. There’s just way more demand than supply.” The area is bereft of the kind of warehouses that got gobbled up in the West San Fernando and Santa Clarita valleys. “We don’t have a lot of business parks,” Barsamian said. “Institutional money would love to buy into the San Fernando Valley if we had product. Ownerships don’t change very often for the ones that we have.” In recent quarters, Valley industrial has translated to add-on value or adaptive reuse. “In Glendale, Burbank and North Hollywood, people are buying these buildings and turning them into flex space,” Barsamian said. “That’s why you don’t see any ‘new construction’ (statistics).” And then there are the micro areas – along the L.A. River corridor from downtown L.A. into Studio City, primarily abutted by industrial. However, developers are converting this stock into housing. “Properties are taking one product type and turning it into something new,” Barsamian said. “There’s a lot of pressure on the product.”