Office Market Leveling Off From Year’s Sharp Downturn

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Office Market Leveling Off From Year’s Sharp Downturn

By DANNY KING

Staff Reporter

The South Bay commercial real estate market went into a holding pattern during the last three months of 2001.

Office vacancies stood at 16.9 percent, up from 16.2 percent in the third quarter and 10.9 percent in the year earlier period, according to Grubb & Ellis Co. The uptick reflected the end of a year that saw tenants and landlords delay longer-term decision-making.

A prime example: financial services firm FNIC’s one-year extension for its 75,000 square feet of offices in Torrance, one of a number of firms to take short-term extensions, according to Steve Cramer, senior vice president at Colliers-Seeley Co.

More than 124,000 square feet came onto the market for lease in the quarter than were taken off. But considering that in the like period a year ago the South Bay had negative net absorption of more than 1.3 million square feet and that the third quarter of 2001 saw negative net absorption of 650,000 square feet the fourth quarter might be seen as a hopeful sign. Only West Los Angeles put more space back on the market in 2001.

Forget about retiring

Accounting for a third of the South Bay’s commercial real estate inventory, the dot-com collapse pulled El Segundo’s occupancy rate markedly lower. Of its base of 10 million square feet, fully 18.2 percent were vacant in the fourth quarter, up from 16.3 percent in the third quarter and 4.8 percent for the fourth quarter of 2000. El Segundo’s negative net absorption rate was 94,000 square feet for the quarter and 897,000 square feet for the year.

“Nobody’s going to be able to retire off this year,” said Jim Jandro, senior managing director at Insignia/ESG Inc. in El Segundo.

Still, there were signs of life in the office market.

The most notable purchase deal was in El Segundo, where Infonet Services Corp. paid Opus West Corp. $25 million for the 121,000 square-foot Grand Avenue Corporate Center. “We’re encouraged to see the Opus sale at a very high ($207 per foot) price,” said Continental Development Corp. President Richard Lundquist, whose company is banking on an El Segundo rebound, since it will be completing two buildings totaling 315,000 square feet in El Segundo and Hawthorne this quarter. “I think that says a lot about the desirability to be in this area,” he said.

Other fourth quarter deals included DirecTV’s renewal of its lease of 182,000 square feet at a Kilroy Realty building in El Segundo, a seven-year deal worth $56 million, and the Los Angeles District Attorney Office’s 10-year, 68,000 square-foot lease in Gardena valued at over $16 million.

Also, with the government’s award of the Joint Strike Fighter contract in October, Northrop Grumman Corp. began its search for an additional 200,000 square feet of office space, which is expected to be secured near its offices in El Segundo by mid-year. Other defense-related firms expected to absorb South Bay space include Raytheon Co. and TRW Inc.

“We’re seeing activity driven by the aerospace market,” said Cramer.

Any excuse to delay

The fourth quarter slowdown was felt in the South Bay industrial sector as well. Space tightened only slightly, with a fourth quarter industrial vacancy rate of 4.5 percent, down from 4.6 percent in the third quarter but up from 3.6 percent in the fourth quarter of 2000. South Bay industrial asking rents rose a penny in the fourth quarter, to 56 cents a foot, still down from 58 cents for the like period a year earlier.

The amount of space either sold or leased, the common measure of industrial activity in the market, fell to 2.4 million square feet from 2.8 million for the year-earlier period. On the year, industrial activity fell precipitously, from 12.3 million square feet in 2000 to 7.4 million last year.

“A lot of companies were looking for any excuse to delay making business decisions,” said Jeff Smart, senior vice president at Grubb & Ellis Co. “We’re going to do half the business that we usually do.”


Major Events:

– Infonet Services Corp. paid Opus West Corp. $25 million for the 121,000 square-foot Grand Avenue Corporate Center in El Segundo.

– DirecTV renewed its lease of 182,000 square feet in a Kilroy Realty building in El Segundo in a seven-year deal worth about $56 million.

– Geo Logistics leased 177,000 square feet at ProLogis Park in Torrance in a seven-year deal worth about $8 million.

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