REAL ESTATE QUARTERLY - South Bay
Industrial Market Bounces Back Thanks to Record Traffic at Port

By PAT MAIO
Staff Reporter

While the South Bay commercial and office lease markets remain sluggish, industrial property values appear to be strengthening in the Carson, Torrance and Long Beach submarkets due to record-breaking cargo traffic moving through the ports of Long Beach and Los Angeles.

"The market has definitely turned in the South Bay. It appears the South Bay is leading the charge in market activity as compared to other industrial areas," said John J. Schumacher, a senior broker with CB Richard Ellis.

Over the past six months, there was sustained activity in the South Bay market, Schumacher said, whereas in the preceding three years there would be one month on and one off.

In the industrial market, the South Bay vacancy rate fell to 3.3 percent, down from 4.1 percent in the first quarter, and also down from 4 percent in the second quarter of 2003, according to Grubb & Ellis Co.

Sales and lease activity in the industrial market totaled 8.2 million square feet in the first six months of the year, versus 6.8 million in the first half of 2003.

For the second quarter, asking rents rose slightly to 54 cents a square foot from 51 cents in both the year-ago period and the preceding first quarter.

Industrial leasing and development has been particularly busy in the Carson and Rancho Dominguez areas, which draw on the close proximity of the Ports of L.A. and Long Beach.

Schumacher cited a new 20-acre site at the intersection of Wilmington Avenue and Charles Willard Street in the Dominguez Technology Center, where FedEx Corp.'s ground unit recently announced plans to build a 218,000-square-foot distribution center.

The new site, which is scheduled to open in late 2005, will be leased from the 438-acre technology center's owner, Carson Cos. FedEx plans to employ up to 600 people and make the site a major hub to handle about 15,000 packages per hour when running at full capacity.

The South Bay commercial office side hasn't fared as well, but a few bright spots are emerging.

Overall, office vacancies nudged down to 19.3 percent from 20 percent in the first quarter, and above the year-ago vacancy level of 19.1 percent.

For the first half of the year, net absorption totaled 171,367 square feet, with most of that coming in the second quarter. That compares with negative net absorption of 314,346 square feet in the year-ago first half, when more space was placed on the market than was newly occupied.

The activity hasn't yet translated into higher rates. Average asking rents for Class A space fell to $2.03 per square foot in the second quarter from $2.04 in the first and $2.13 in the year-ago second quarter.

"It's sluggish right now, but not as bad as last year," Jim Biondi, senior vice president of Grubb & Ellis. "We are not to the point where owners and landlords are raising rates. They are still cautious and concerned."

The LAX/Century Boulevard corridor remains one of the toughest leasing submarkets in Los Angeles. Vacancy rates there fell only slightly to 30.1 percent by far the highest in the city from 31.6 percent in the first quarter.

El Segundo, with 10.5 million square feet of commercial space, had the second-highest vacancy rate at 24.1 percent, a small improvement from 25.1 percent in the first quarter and 26.1 percent in the second quarter of 2003.

Stephen Cramer, senior vice president of Colliers Seeley International, sees a possible turnaround in the area with several aerospace companies firming up lease deals in El Segundo. As examples, he cited Northrop Grumman Corp. taking 100,000 square feet at two locations, along Aviation Boulevard and near Nash Street and Mariposa Avenue; and Unisys Corp. taking 50,000 square feet on Aviation.

Raytheon Corp. also is in the market to lease more than 100,000 square feet of space, Cramer said.

Another big deal in El Segundo involved Amsterdam-based ING Groep N.V. moving the offices of its Torrance-based acquisition, Financial Network Investment Corp., to 80,000 square feet in the Pacific Corporate Towers at 100 Sepulveda Blvd.

Major Events:

-FedEx Corp. leased 20 acres in Dominguez Technology Center from the Carson Cos., with plans to build a 218,000-square-foot distribution center at the intersection of Wilmington Avenue and Charles Willard Street.

-Wells Real Estate Funds purchased the 309,705-square-foot Manhattan Towers at 1230-1240 Rosecrans Ave., Manhattan Beach, for $90 million, or $290.60 per square foot.

-Northrop Grumman Corp. leased 52,000 square feet for $2.2 million over three years at 601 N. Nash St.

-Triple Net Investments purchased the 211,388-square-foot midrise office building at 20770 Madrona Ave. in Torrance for $47 million, or $222.34 a square foot, from Southwest Value Partners.

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