Continuing demand for port-related space pushed already-low vacancy rates in the South Bay industrial market even lower.

Vacancies fell to 2.5 percent in the first quarter, from 2.6 percent in the previous three months and 4.1 percent in the first quarter of 2004, according to Grubb & Ellis Co.

Sales and lease activity totaled 2.5 million square feet, and net absorption neared 300,000 square feet as customs brokers and logistics firms tried to accommodate a surge of goods from Asia.

Meanwhile, the South Bay's office market remained the worst-performing sub-sector in Los Angeles in recent quarters.

Office vacancies in the area stretching southward from the Los Angeles International Airport to Long Beach dipped to 20.4 percent in the first quarter from 20.6 percent in the October-December period. Vacancies remain above the 20 percent notched in the first quarter of 2004.

The net amount of space vacated in the South Bay totaled 118,624 square feet, after 288,963 square feet were vacated in the fourth quarter.

In the LAX/Century Boulevard submarket, one-third of available office space remains vacant. In the 190th Street Corridor, vacancies rose to 23.7 percent from 22 percent the previous three months and 16.6 percent for the year-ago period.

There was some improvement in struggling El Segundo, which still saw vacancies above 20 percent, as well as in stronger submarkets such as Carson, Torrance and downtown Long Beach. Vacancies in suburban Long Beach rose to 14.4 percent from 11.1 percent in the fourth quarter.

Mark Mattis, vice president at PM Realty Group, said he's starting to see a few leases signed in El Segundo, which means the South Bay office market could be poised for a comeback.

"The South Bay is now the laggard sub-market in Southern California," Mattis said. "We need the Westside and Santa Monica to tighten up, which would put pressure on firms to move south as occupancy costs increase in those markets."

Notable first-quarter deals in the office sector include Vendare Media Group, an online marketing firm, signing a seven-year lease for 67,000 square feet in Continental Park on Rosecrans Avenue for an undisclosed sum.

In Long Beach, a partnership that includes Bantry Holdings and GRE Shoreline Square Ltd. bought the 21-story Shoreline Square building in downtown from Trizec Properties for $87.4 million.

Demand for South Bay industrial and warehouse space coincides with a surge in cargo in January, after restrictions on textile and apparel exports to the U.S. were lifted by the World Trade Organization. The twin ports of Los Angeles and Long Beach are headed for a third straight year of record cargo flow.

Jeff Morgan, senior vice president in the industrial division at CB Richard Ellis Co., said cargo coming out of Asia has pushed warehouse vacancy rates to levels not seen since the late 1980s.

One measure of the area's strength: More square footage is under construction in the South Bay than in any other L.A. County submarket nearly 2.5 million square feet.

"The primary tenants are third-party logistics companies handling merchandise coming out of China for large importers and retailers," Morgan said.

Real estate brokers say activity in the first quarter shifted away from buying to leasing because property isn't available. Asking rents on South Bay industrial space has remained relatively steady, at 53 cents a square foot in the first quarter versus 54 cents in the fourth quarter and 52 cents in the year-ago first quarter.

Among large lease transactions in the first quarter was a 27-month, $5 million lease for a 315,000-square-foot building from AMB Property Corp., signed by American Port Services, a third-party logistics company in Savannah, Ga.

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