The South Bay office vacancy rate fell nearly 2 percent in the second quarter as the strong economy and the area's reputation as an affordable alternative to the Westside kept drawing new tenants.

Driven by the leasing of 255,807 square feet of space, the overall vacancy rate fell to 14.7 percent in the second quarter from 16.6 percent in the previous three-month period, according to Cushman & Wakefield Inc.

But in the process, the average lease rate stayed relatively flat actually falling 1 cent from $1.58 to $1.57 per square foot.

"Overall it's a healthy market," said Jim Biondi, a broker at Grubb & Ellis Co. "It's healthier for landlords, but not for tenants."

Brokers said the South Bay office market is becoming especially popular with technology companies, entertainment firms and ad agencies.

While the office market stayed strong, some of the biggest transactions came in the industrial sector. A huge deal by Boeing Co. sent the industrial vacancy rate in the Long Beach (710) Freeway corridor submarket plummeting to 7.1 percent in the second quarter from 22.9 percent in the first.

It was believed to be the lowest industrial vacancy rate in the submarket in more than a decade.

Grafton Tanquaray, senior vice president at CB Richard Ellis Inc., said Boeing leased 369,750 square feet for parts distribution on Western Avenue in a new project developed by Fremont Associates in conjunction with RREEF Funds.

The $13 million transaction took place at the beginning of June. Boeing also renewed its lease for 165,000 square feet in Long Beach Airport Business Park.

Even more industrial space is scheduled to come online in Carson, where Watson Land Co. broke ground this month on three buildings totaling more than 450,000 square feet at its Dominguez Technology Center. The project represents the first of 3.3 million square feet of new construction that Watson plans to undertake in the next six to eight years in the South Bay.

In another major second-quarter transaction, Tatung Co. leased 168,000 square feet of industrial space at 23610 Banning Blvd. in Carson. The three-year deal is worth $2.6 million.

Two other major transactions were completed at Kilroy Airport Center in Long Beach. Scan Health leased 107,000 square feet, while Epson U.S. leased 99,365 square feet. Epson plans to vacate its current 232,816-square-foot facility in the Torrance area as part of its move to new location.

Also in Torrance, the Hawroyd Family Trust bought an 18,000-square-foot industrial building at 990 Knox St. for $1.8 million in June.

On the office front, Arden Realty acquired the 6701 Tower in the Howard Hughes Center development for about $53 million from Prudential Insurance Co.

Arden Realty and Lowe Development are building a 240,000-square-foot project at 6060 Center Drive in the Howard Hughes Center due to be completed in March of next year.

In addition, property at 2300 Imperial Highway was bought by Proficiency Capital Association for $9.5 million. The 147,008-square-foot building will be renovated and converted into high-end office space. A target date of early 2000 has been set for occupancy.

In leasing deals, Sierra Systems acquired 21,000 square feet in the second phase of the Continental Grand Plaza development in El Segundo. Another 40,000 square feet has been leased by Regus Executive Suites.

Meanwhile, major renovations are underway to property at 898 Sepulveda Blvd., which was sold to Legacy Partners last year. The renovation is scheduled for completion in the fourth quarter of this year and will involve 85,651 square feet of space.

Major Events

? Boeing leased 369,750 square feet of industrial space on Western Avenue in a new project developed by Fremont Associates in conjunction with RREEF Funds in a $13 million transaction. Boeing also renewed its lease for 165,000 square feet in Long Beach Airport Business Park.

? Arden Realty acquired the 6701 Tower in the Howard Hughes Center development for about $53 million from Prudential Insurance Co.

? In Carson, Watson Land Co. broke ground this month on three buildings totaling more than 450,000 square feet at its Dominguez Technology Center.

? Tatung Co. leased 168,000 square feet of industrial space in Carson. The three-year deal is worth $2.6 million.

? At Kilroy Airport Center in Long Beach, Scan Health leased 107,000 square feet, while Epson U.S. leased 99,365 square feet.

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