REAL ESTATE QUARTERLY: Vet Broker Says Office Market Delivering Historical Performance

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-Greenlaw Partners bought One World Trade Center, a 575,000-square –foot office building at One World Trade Center Drive in Long Beach, for $106 million from SteelWave Inc. in August.

-Canada’s Onni Group bought Manhattan Towers, a two-building office complex of 311,500 square feet at 1230 and 1240 Rosecrans Ave. in Manhattan Beach, for $91.5 million from CWCapital Asset Management, a subsidiary of Walker & Dunlop Inc. of Bethesda, Md., in September.

-Toll Holdings Ltd. leased 294,000 square feet in an industrial building at 2000 Carson St. in Carson from Watson Land Co. in September.

-NRT/Sea-Logix leased 177,000 square feet in an industrial building at 220 W. Manville St. in Compton from Horizon Logistics in September.

-American Logistics Co. leased 150,000 square feet in an industrial building at 2910 E. Pacific Commerce Drive in Rancho Dominguez, from California Public Employees’ Retirement System in September.

In his 28-year career brokering commercial office building deals in the South Bay, Steve Solomon, managing director of Jones Lang LaSalle Inc. in El Segundo, said he hasn’t seen a better office market than this year’s third quarter.

Year-over-year vacancy rates in the market have dropped in each of the past two quarters. At the close of the most recent quarter, the rate stood at 21 percent, down from 22.3 percent a year ago and 21.7 percent the prior quarter. The market posted its second straight quarter of positive net absorption. The average asking rent of $2.41 was 3 cents lower than the previous period.

With just a couple of pockets as exceptions, that broader submarket vacancy rate was close to recent lows. That coincided with rent increases in some submarkets, including El Segundo, and sale prices that have also risen, Solomon said.

“In my career, those usually don’t align,” said Solomon, who pointed to several reasons why now. One is Los Angeles County’s 7 percent unemployment rate in August, the lowest it’s been since May 2008, has been accompanied by job gains in several industries and modest wage increases.

That has helped boost demand for space even as interest rates remain low.

Vacancy rates even dipped for the Century Boulevard area near Los Angeles International Airport. In the third quarter, the rate slipped to 44.6 percent from 45.6 percent a year ago, and the area has had its second straight quarter of positive net absorption. Rents also increased by a dime to $1.70 a square foot from the same period last year.

Solomon cited two building sales as examples of high sale prices. One is the nearly $106 million sale in August of downtown Long Beach’s One World Trade Center by Foster City’s SteelWave Inc. to Greenlaw Partners of Irvine. The other is the two-building Manhattan Towers in Manhattan Beach, which CWCapital Asset Management, a subsidiary of Walker & Dunlop Inc. of Bethesda, Md., sold to Canada’s Onni Group for $91.5 million last month.

In South Bay’s industrial market, 1.3 million square feet were under construction during the quarter, more than anywhere else in Los Angeles County except for central Los Angeles.

Luke Staubitz, a JLL executive vice president in El Segundo, said that activity was focused on repurposing or demolishing obsolete manufacturing facilities and replacing them with new. Many of the properties are built by merchant builders rather than investors seeking long-term holds.

“We expect to see that trend continue,” Staubitz said. “All of that is geared toward global logistics providers.”

Rental rates rose a penny in the quarter to 66 cents a square foot and were up 5 cents from the year-ago quarter. The South Bay’s industrial vacancy rate of 2.1 percent, down from 2.4 percent the previous quarter, is tied with the Mid-Cities area for the tightest areas in the county.

The drop in the South Bay vacancy rate from a year ago is a sign it’s heading toward historically low levels, Staubitz said. Rental rates are also reflecting that trend.

“They continue to set new highs as evidenced by transactions exceeding 70 cents a square foot in the 50,000-square-foot size segment and up for Class A buildings,” he said.

– Carol Lawrence

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