Call it the incredible shrinking South Bay real estate market. Office and industrial vacancy rates in the South Bay are nearing 20-year lows, and real estate brokers are wondering how much longer the boom will last and where future office space will come from. "It is a very good time down here right now," said Alex Rose, director of development for Continental Development Corp., a commercial real estate developer with buildings along the popular Rosecrans Avenue Corridor between Manhattan Beach and El Segundo.

The overall office vacancy rate in the South Bay dropped in the third quarter to 11.8 percent, down from 12.6 percent in the second quarter and 17 percent in the third quarter of 1999, according to Grubb & Ellis Co.

Setting the pace was the El Segundo/Manhattan Beach submarket, where the office vacancy rate fell to 5.3 percent in the third quarter, down from 9.3 percent in the second quarter.

In contrast, the office vacancy rate along the LAX/Century Boulevard corridor remained relatively high at 24.5 percent, but even that is nearly a 2 percentage point improvement from the second quarter.

While the office market tightened, the South Bay's industrial vacancies almost disappeared entirely in the third quarter, declining to 3.3 percent, compared to 3.8 percent in the second quarter and 4.5 percent in the third period of 1999.

"There is just a tremendous amount of activity from across different industries," said Jim Biondi, senior vice president at Grubb & Ellis.

Rose said that Continental Development's office plazas are nearly 100 percent occupied except for an occasional mini-suite that opens up. The Continental Plaza buildings, with lush tropical gardens and water fountains, are an example of how conditions have changed in the South Bay, which many tenants formerly considered a third or fourth alternative.

Now the South Bay is a hotly sought-after market. Available class-A office space in the beach cities is practically non-existent. In Manhattan Beach, for example, lease rates jumped to $2.70 per square foot per month in the third quarter from $2.54 during the second quarter.

Real estate observers say all sorts of companies are leasing office and industrial space in the South Bay, from high-tech firms unable to find enough office space in the popular Westside to medical and insurance companies expanding their businesses.

"There is a plethora of activity," said William S. Goodglick, president of the Goodglick Co. brokerage firm. "But the scary thing is, can we sustain this?"

Many people think so, as witnessed by the office building boom.

Continental Development expects to break ground next month on a new 290,000-square-foot office complex called the Atrium, which will feature two five-story buildings at the corner of Rosecrans Avenue and Douglas Street. Space will lease for about $3.25 a square foot per month, Rose said.

"We figure once we get the fence up and the trailer moved on site and the dirt moving, we'll start to see some serious leasing discussions," he said.

The project is scheduled for completion in the fall of 2001.

Continental Development is also planning to develop a 25,000-square-foot office complex down the road in Hawthorne, with ground-breaking set for the end of the year.

Overton Moore Properties in partnership with Pacific Coast Capital Partners expects to break ground this quarter on a 170,000-square-foot office development called Crosspointe in El Segundo. The partners also expect to develop a 210,000-square-foot building geared toward tech tenants, located in El Segundo at Douglas Street and Mariposa Avenue.

On the industrial front, the South Bay market is also extremely tight. One of the reasons is that increasing import and export volume at the ports of Los Angeles and Long Beach means warehouse space is in great demand, said Jeffrey Morgan, senior vice president with CB Richard Ellis Inc.

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