After being pummeled by aerospace industry losses for much of the late 1980s and early '90s, the South Bay industrial real estate market is seeing something of a rebirth. The area has posted its lowest industrial vacancy rate in 10 years and is finally starting to see some construction activity.

The vacancy rate for South Bay industrial space is 6.8 percent, about half the 13 percent vacancy at the end of 1993, according to Grubb & Ellis Co.

Further, if the obsolete, "non-leasable" space is backed out, the vacancy rate may be as low as 5 to 6 percent, said Terry Reitz, senior vice president at Grubb & Ellis. "It's difficult to go too much lower because this coming year there will be some spec space being built, plus normal turnover creates a certain vacancy factor."

To meet this increased demand for space, South Bay developers have begun major speculative industrial projects for the first time since 1991.

Carson Cos., for example, has begun building a 67,000-square-foot spec industrial project in the Dominguez Technology Center on the north end of Carson the company's first industrial project since 1993.

Shortly after construction began, Henry Bath Inc. expressed interest in leasing the entire building, said Matt Vanderhorst, senior vice president at Carson Cos. The London-based metal distributor signed a lease in April at a monthly rate of 42 cents per square foot.

Carson Cos. is now considering beginning construction on two additional buildings (for a total of 250,000 square feet) in the same industrial park by the end of the year.

Another large South Bay developer, Watson Land Co., plans to begin construction on five industrial buildings in Carson this fall, said President Dick Cannon. He said space in two of the buildings will be leased by large international companies planning to expand in the South Bay, but he would not identify the companies.

Another indication of resurgence is the increased appetite of investors. In the second quarter, Seattle-based Kennedy Associates Real Estate Counsel Inc. purchased a total of 500,000 square feet of industrial space in seven buildings in the Carson area, and San Francisco-based RREEF Fund purchased 1.1 million square feet of space in seven buildings in Carson.

Despite the marked improvement in the industrial sector, office vacancy rates changed little during the quarter in most submarkets. And the overall South Bay office market, with a 21 percent vacancy rate, still lags L.A. County's overall 16.5 percent vacancy rate.

The Long Beach Suburban submarket suffered a notable increase in its vacancy rate, from 13.6 percent at the end of the first quarter to 15.1 percent at the end of the second quarter, according to Grubb & Ellis.

Robert Garey, a principal with Matlow Kennedy Commercial Real Estate Services, attributed much of this increase to the loss of one major tenant: Australian-New Zealand Direct Line Shipping Co. relocated to Orange County, leaving behind 28,000 square feet of space at the Marketplace Office Park in east Long Beach.

Long Beach's other submarket, Long Beach Downtown, has the second-highest vacancy rate in the South Bay, with 23.8 percent of the space vacant. (The LAX/Century Boulevard submarket has the highest South Bay office vacancy rate, with 33.9 percent).

But Long Beach's office vacancy rate may improve with the renovations of several downtown buildings, said Garey. "There's been a healthy change of ownerships," he said, noting that in June Blue Real Estate Management Co. purchased its second Pine Avenue building the 72,000-square-foot City Centre Building at 200 Pine Ave.

"My feeling is that it's an area that's quickly becoming gentrified," said Jim Ries, president of Blue Real Estate. "These buildings are doing much better than the average Long Beach properties because people like to be on Pine."

In contrast, the El Segundo/Manhattan Beach office submarket continues to improve with a vacancy rate of 18.1 percent and a net absorption of 32,300 square feet during the second quarter.

"Rosecrans is still the hottest market in the South Bay," said Steve Solomon, senior marketing executive for The Seeley Co. Solomon estimates that the vacancy rate for Class A office space on the Rosecrans Corridor is as low as 5 percent.

Tenants lowering that rate in the second quarter include TRW Inc., which signed a five-year lease for an additional 75,000 square feet in Manhattan Towers (the company already had 150,000 square feet there) and Electronic Data Systems, which renewed a 60,000-square-foot lease at the Plaza at Continental Park.

Another project in the El Segundo/Manhattan Beach submarket that has seen recent activity is the Pacific Concourse, located at La Cienega Boulevard and Imperial Highway. During the second quarter, the County of Los Angeles broke ground on a 160,000-square-foot courthouse and county office building there. Three other buildings that are 90 percent leased already exist at the site and two more could be built, said Solomon.

Major Events

L.A. County broke ground on a 160,000-square-foot courthouse and office building at La Cienega Boulevard and Imperial Highway.

TRW signed a five-year lease for 75,000 square feet in Manhattan Towers on the Rosecrans Corridor.

Electronic Data Systems renewed a lease for 60,000 square feet in Plaza at Continental Park on the Rosecrans Corridor.

Henry Bath Inc. signed a lease for a 67,000-square-foot building in Carson.

An 18,000-square-foot Beverages and More store opened at the Airport Plaza Shopping Center at Pacific Coast Highway and Crenshaw Boulevard in Torrance.

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