Contributing Reporter

The South Bay real estate picture continued to improve in the third quarter as vacancy rates declined and rents increased for both office and industrial properties.

Office vacancies fell from 17.3 percent in the second quarter to 16.0 percent in the third, according to Cushman & Wakefield Inc.

The El Segundo market continues to hold its own, providing the backdrop for two of the top three South Bay office leasing deals this quarter, according to Cushman & Wakefield. Ernst & Young took 57,000 square feet in the Pacific Corporate Towers building at 200 Sepulveda Blvd., and EDS took 50,744 square feet of sublease space in the Continental Park building at 2120 Park Place.

The third-biggest leasing deal involved Maritz Marketing Research, which will take 27,500 square feet at the Freeway Business Center in Long Beach.

The activity put some upward pressure on rents, which rose from an asking office lease rate of $1.49 in the second quarter to $1.50 in the third, according to Cushman & Wakefield.

There were several large purchases of office properties during the third quarter, especially in Long Beach. Toronto-based TrizecHahn Corp. bought Landmark Square, a 24-story office tower at 111 W. Ocean Blvd., for $86 million. The tower was 86 percent occupied at the time of its purchase. TrizecHahn also bought Shoreline Square, another prime office tower in downtown Long Beach, for an estimated $60 million.

Despite TrizecHahn's apparent confidence in the area, Cushman & Wakefield's Jim Jandro says the Long Beach market still has a space glut as a result of Raytheon Co. acquiring the defense and aerospace businesses of Hughes Electronics Corp., and Boeing Co. taking over McDonnell Douglas Corp. "Those actions are going to put some sublease space back on the market," Jandro said.

In El Segundo, Candle Corp. of Santa Monica committed to buy the 555,000-square-foot Rockwell building from AEW/Layton Belling & Associates, though the deal will not be finalized until January.

On the development front, the Continental Grand Plaza Phase II, a 240,000-square-foot speculative building in El Segundo, broke ground, and Morgan Stanley Real Estate Co. is developing a build-to-suit of approximately 180,000 square feet for Infonet at Grand Avenue and Nash Street in that city.

Nearby at the corner of Mariposa and Nash streets, Majestic Realty Co. is building a new practice facility for the Kings and Lakers on a piece of land Majestic bought during the second quarter.

When these developments are completed, brokers expect South Bay vacancy rates to get another downward push and rental rates will likewise be lifted.

In Torrance, Redondo Beach-based Malaga Associates bought a one-acre site near Torrance Boulevard and Van Ness Avenue for $541,000 from Pacific Bell. It's planning a $3 million, 20,700-square-foot office building.

Ledtronics Inc. plans to triple its office space with the acquisition of a 50,660-square-foot industrial building in Torrance. Ledtronics paid $2.8 million for the building, which will house about 100 workers.

Torrance based Mar Ventures Inc. plans to start construction before the end of the year on a $100 million hotel/office project in Hawthorne. The project is planned for a 16-acre site at the corner of Aviation Avenue and Rosecrans Boulevard. Also, RRW investments has purchased a 91,000-square-foot building in Carson for an estimated $3.6 million.

South Bay brokers say they have yet to feel any major effects from the Asian financial crisis, although that may soon change.

"As much as anything else, the Asian crisis will affect us, it's just a question of how much," said Mike Condon, senior vice president of Seeley Co. "As of today, there really have been no direct effects."

The industrial market continues to be extremely tight in the South Bay, with vacancy rates dropping from 4.9 percent in the second quarter to 4.7 percent in the third, according to Cushman & Wakefield.

The bulk of new activity this year has been in the LAX/El Segundo area, where vacancies have dropped 56 percent from the first quarter. The growth is partially due to the need for companies to be close to the Los Angeles Airport.

Industrial leasing activity reached almost 1 million square feet this quarter. Nissan North America Inc. signed a 12-year, $25 million lease for 380,000 square feet at 741-745 Artesia Blvd. in Compton, and G.P. Johnson leased 308,640 square feet at 4240 190th in Torrance. In addition, McDonnell Douglas renewed its 302,400-square-foot lease at 2220 E. Carson Street.

The direct weighted average rental rate for industrial properties rose by a penny during the third quarter, to 46 cents per square foot.

Major Events

? Ernst & Young leased 57,000 square feet at 200 Sepulveda Blvd. in El Segundo.

? EDS leased 50,744 square feet of sublease space at 2120 Park Place in El Segundo.

? Maritz Marketing Research leased 27,500 square feet at the Freeway Business Center in Long Beach.

? TrizecHahn paid about $146 million to buy two major office towers in downtown Long Beach, Landmark Square and Shoreline Square.

? Ground was broken on the 240,000-square-foot Continental Grand Plaza phase II in El Segundo.

? Nissan North America Inc. leased 380,000 square feet at 741-745 Artesia Blvd. in Compton

? G.P. Johnson leased 308,640 square feet at 4240 190th in Torrance.

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