A new region is emerging as a top destination for tech companies, many of which have outgrown their pricey Westside digs.
Once a haven for aerospace companies and manufacturers seeking proximity to Los Angeles International Airport, the El Segundo area is attracting an increasing number of growing tech companies that can't find or can't afford large blocks of space in such coveted areas as Santa Monica.
Numerous leases in the South Bay have been signed recently, and more deals are on the way. About half a dozen Westside tech companies are each currently seeking 50,000 square feet or more in or near El Segundo, and many tech companies already located in that area are looking to expand, real estate brokers said.
"(People) want to live and work by the coast," explained Craig Meyer of the Seeley Co. "The market has turned 180 degrees. It used to be that the L.A. Airport was the demarcation zone; nobody from the north went south of there, and nobody from the south went north. Today it's the 405 Freeway."
The trend isn't expected to slow anytime soon.
"There's been hundreds of thousands of square feet of old technologies and new technologies that are going (to El Segundo and elsewhere in the South Bay). That will continue regardless of space availability on the Westside," said Grafton Tanquary of CB Richard Ellis.
The trend is so pronounced that "El Segundo is being referred to as the lower Westside," said Kevin Shannon of Grubb & Ellis Co.
Carparts.com employees are preparing for their July move to a 24,000-square-foot space at 222 N. Sepulveda Blvd., combining the company's two current offices at 3000 Ocean Park Blvd. in Santa Monica and 11845 W. Olympic Blvd. in West L.A.
"We're busting at the seams," said Peter McLaughlin, director of communications for Carparts.com. "We need room for the growth we're experiencing and to consolidate the couple of offices we have now."
The company chose El Segundo because it offers what the Westside is lacking: cheaper space.
"It is certainly more economical to lease the space that we need in El Segundo than it is in Santa Monica," McLaughlin said. "The fact is, not many properties are available (in Santa Monica) for the space that we need, and what is available is very expensive."
One of the first companies to vacate Westside digs for a new home in El Segundo was software maker Candle Corp., which moved last fall from the Water Garden in Santa Monica to a 320,000-square-foot campus on North Douglas Street.
"We started looking about three years ago, knowing this is not a simple decision," said Ken Larson, chief administrative officer for Candle. "We saw some really excellent opportunities in the Valley, excellent opportunities downtown, but as we looked at El Segundo, we discovered a property being offered at really good terms."
The company significantly reduced its lease expenses as a result of the move. As Candle settled in, its employees also discovered the local attractions.
"I used to work for Xerox, just up the block, in the mid '80s. There wasn't anyplace to go to," Larson said. "It's amazing what's happened in the Rosecrans (Avenue) corridor, not just during the day with lunch and shopping, but in the evening, with the theater and dining."
Rosecrans Avenue, which marks the border between Manhattan Beach and El Segundo, has seen a flurry of new retail development over the past few years, with the addition of an enormous Barnes & Noble store, a Trader Joe's, a Bristol Farms grocery store, a P.F. Chang's Chinese restaurant, and an Il Fornaio Italian restaurant.
Businesses including Yahoo! Inc. and satellite company Pan Am Sat have leased space in the Media Center, a class-A office building at Raleigh Studios Manhattan Beach on Rosecrans, just across the border from El Segundo.
In El Segundo proper, Santa Monica-based Isuppli.com recently leased more than 40,000 square feet in the E-Tech Center on Walnut Avenue. Foodserviceone.com leased more than 13,000 square feet at the Continental Grand Plaza at 300 Continental Blvd. And several other tech companies and dot-coms are currently seeking space in the area, brokers said.
The fact that tech companies are migrating to El Segundo makes sense, Shannon said.
"Buildings in El Segundo have big plates, high floor loads, high parking, because they were designed for the old high-tech economy, but they are perfect for high-tech companies today," Shannon said.
The growing desirability of the area is resulting in increased lease rates and lower vacancies.
At the beginning of the year, sought-after class-A office space could be nabbed at around $2 to $2.25 a square foot, per month. These days, $2.25 a square foot is considered a steal and $2.50 a square foot is not out of the question, brokers say. By comparison, the average Westside rate stood at $2.81 a square foot early this year, but prime rates for Westside property can be as high as $5 a square foot, area brokers said.
More tenants are expected to flock to the area, as new office projects are completed. Continental Development, the area's largest landlord, plans to build a 300,000-square-foot building at the corner of Rosecrans and Douglas. And El Segundo Media Center LLC is buying 46 acres of property just south of LAX, with plans to develop a 1.5 million-square-foot office/studio complex there.
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