By KAREN TEITELMAN

Staff Reporter

The South Bay office market, which seemed to be quickly recovering during the first three quarters of the year, slipped off track in the last three months of 1998 though vacancy rates are still lower than they were a year ago.

The vacancy rate hit 18.3 percent in the fourth quarter, up from 17.3 percent in the third, according to Cushman & Wakefield Inc. The increase also comes after two consecutive quarters in which vacancy rates fell.

Brokers cite the departure of several large companies in recent months. Logicon vacated 74,000 square feet at 6053 Century Blvd. near Los Angeles International Airport. GSA left Pacific Corporate Towers at 222 Sepulveda Blvd in El Segundo, leaving 140,000 square feet available. Also in El Segundo, the city of Los Angeles let the lease at 100 Sepulveda expire and vacated 70,000 square feet.

Also adding to vacancy rate was the purchase of the vacant Todd Towers at 888 and 898 N. Sepulveda Blvd. in El Segundo by Legacy Partners for $9.5 million. The buildings were not being marketed before the purchase and hence didn't show up on previous quarterly statistics, but now they are being counted. The 888 building may be converted into a hotel, according to Cushman & Wakefield, and the 898 building will be converted into office space.

Thanks to these moves, the vacancy rate in El Segundo alone rose from 11.7 percent in the third quarter to 15 percent in the fourth.

Nonetheless, there is some development activity continuing in El Segundo, notably Kearny's Grand Avenue Corporate Center. Infonet Services Corp. broke ground during the last week of October on the $16 million, 150,000-square-foot project, which will eventually become home to the L.A. Kings and Lakers practice facility, as well as a speculative four-story office building and Hilton Garden Hotel.

Also on the development front, a big project looms in Long Beach's future with the planned overhaul of Long Beach Plaza by new owners Coventry Real Estate Partners. The 450,000-square-foot mall is expected to cost upwards of $50 million.

The South Bay's perennially strong industrial market saw a slight improvement during the fourth quarter, dropping to 4.5 percent from 4.7 percent in the third. The extremely low vacancy rate has resulted in plenty of development activity; according to Grubb & Ellis Co., nearly 2 million square feet of new speculative construction took place in 1998, with 972,000 of that pre-leased.

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