February 3, 2017
By Dennis Kaiser
Nestle became Glendale, CA’s signature HQ in the 1990s, following the disappearance of Glendale Federal Savings, Genstar Mortgage, Fremont Insurance and The Disney Stores. The question is now what impact the Nestle’s HQ relocation to Rosslyn, VA will have on Glendale.
Connect Media asked Colliers International’s Dick Schnell, who helped bring Nestle to Glendale, and Charles Dunn’s Bill Boyd, one of the market’s most tenured brokers, how they expect the departure of 375,000 square feet will play out over the next 18 months.
Q: How did Nestle end up in Glendale, and who was involved in the deal?
A: Schnell They needed 350,000 square feet, and we conducted a study from Santa Barbara to the Mexican border to identify options. They settled on a development site on Brand Blvd., next to the 134 Freeway. The property was partially owned by the City of Glendale, and the other portion was owned by Glendale S & L.
Carnation (now Nestle) wanted to be a tenant, so we brought in John Miller of Lincoln Property Co. to develop a 500,000-square-foot building to be occupied by Carnation and Glendale S & L. Carnation’s lease was a carried equity lease, which provided them with a long-term lease and an equity position.
Prior to completing the transaction, Carnation was acquired by Nestle. The initial lease term was 20 years, and Nestle eventually exercised one or two of their options to extend the term.
Q: Given Nestle’s footprint, what does their relocation plan mean for the market?
A: Boyd If all of the space was vacated today, it would cause the current 10% vacancy (600,000 square feet) to jump to 16% (975,000 square feet) within the city’s six million square feet of non-owner user office buildings, in excess of 10,000 total square feet.
The concern is with annual absorption. It’s taken the last six years for vacancy to reach 10%, after being in excess of 20%. The quick math confirms that, given the current absorption, the Glendale office market will need another 45 months to return to a 10% vacancy.
Q: What impact will that vacancy bump have on rents?
A: Boyd Most assume quoted rents will plateau, and the competition of office tenancy will cause an increase in the “free rent” provided for both new leases and renewals. The market learned that securing the lease is paramount, and providing a tenant up to nine months of “free rent” for a five-year lease term is preferred compared to not making such a deal, and still having the same vacancy nine months later.
For comments, questions or concerns, please contact Dennis Kaiser