Office vacancies hit record

DOWNTOWN — A historic high in office vacancies and plummeting demand for real estate has brought unprecedented challenges to Glendale’s downtown market, which is likely to see property values fall as owners begin to drop rents and default on loans, experts and real estate brokers say.

Office vacancy rates have climbed to 20%, reaching a record total of 1.2 million square feet of unfilled space because of recently completed construction and lost tenants, according to experts and recent research from real estate firm Grubb & Ellis.

Glendale’s vacancy rate has reached 20% in the past, but has always been countered by demand, with renters filling at least 200,000 square feet of empty space annually during years of low occupancy, brokers said.

But the opposite has happened in recent months, said Bill Boyd, senior managing director at the Charles Dunn Co., the largest commercial real estate firm in Glendale.

A net total of 20,752 square feet of offices was emptied in the last year and another 41,903 square feet was vacated the year before, according to Grubb & Ellis.

“It is cause for serious concern,” Boyd said.

More tenants had moved into Glendale buildings than out of them in past years of high vacancy, but with the opposite occurring now, brokers are unsure what will happen to the multistory properties downtown, he said.

“That is the $64-zillion question because when the market has had that kind of vacancy in the past, we knew it would burn off because there was leasing absorption going on,” he said. “Right now we have no idea when this vacancy will start to decline.”

Demand for office real estate has fallen throughout Los Angeles County, with every business area monitored by Grubb & Ellis showing tenant losses in the last year.

The drop in renting has been directly tied to the recession and rising unemployment rates, experts said.

Vacancies in neighboring communities are adding to competition for tenants and compounding challenges for local properties, said Paul Habibi, a professor of real estate finance at the UCLA Anderson School of Management.

Burbank may present the biggest challenge to downtown Glendale, as it continues to dilute the market with new developments, he said.