The county's worst-performing office market failed to catch any spark in the second quarter, even as things were improving elsewhere.
South Bay vacancy rates were essentially stagnant at 20.1 percent the only L.A. market where vacancies rose compared with the year-ago period and the only one where they remain above 20 percent, according to Grubb & Ellis Co.
Asking rents showed little progress, rising nominally from the first quarter and year-ago periods, to $2.04 per square foot.
In the 190th Street Corridor, vacancies rose to 23.7 percent from 17.5 percent for the like period a year earlier. Asking rental rates fell as landlords scrambled to replace large tenants.
"This quarter has seen a corporate consolidation in the 190th Street market with Office Depot selling its West Coast facility to Legacy Partners, SBC vacating its 63,000-square foot training center and Health Care Partners consolidating into one location," said Chris Sinfield, senior vice president at Grubb & Ellis.
Another struggling submarket surrounds Los Angeles International Airport. While vacancies fell by two percentage points sequentially, they remain above 30 percent. Vacancies also rose in El Segundo and in downtown Long Beach.
Brokers insist that it's only a matter of time before areas such as El Segundo begin to see a migration of office tenants from the Westside, where prices are significantly higher.
El Segundo maintains lower real estate costs than the Westside, and it is exempt from gross receipt taxes.
"The economy of El Segundo is continuing to become stronger, and I think we're going to see continuing job growth in the next 12 months," said Jim Biondi, senior vice president at Grubb & Ellis. "Job growth results in absorption."
Notable second-quarter deals in the South Bay included the sale of the 215,000-square-foot Royal Airport Center at 5933 W. Century Blvd. by Robertson Properties Group. The buyer and terms of the deal were not disclosed.
In El Segundo, the 121,100-square-foot Grand Avenue Corporate Center was sold by BT-Infonet to Broadreach Capital Partners LLC for $20 million. Additionally, the El Segundo Research Center, a 207,000-square foot building, was purchased by Alliance Commercial for $28.5 million.
It remains a different story in the industrial market as port activity continues to drive demand for the limited supply of land available to house goods coming in from overseas.
"We don't have enough land to service the number of containers that are coming in," said Jerry Evans, president of L.A.-South Bay office of Lee & Associates. "As a result, we are seeing and will continue to see higher lease rates and longer termed leases."
Asking rents during the second quarter rose to 59 cents per square foot from 53 cents in the first three months. Vacancy rates fell to 2.2 percent from 2.5 percent in the first quarter and 3.3 percent in the year-ago second quarter.
Buildings that provide a 53-foot truck turning radius, high loading doors and 30-foot to 40-foot high ceilings are in highest demand.
Old manufacturing buildings are being converted or demolished in order to create accessible distribution warehouses.
The area stretching from LAX to Long Beach is the most active in the county for industrial construction. More than 2 million square feet of industrial space was under construction in the second quarter. Sale and lease activity hit 3.2 million square feet during April-June period, up from 2.1 million in the first quarter but below the 3.9 million of the year-ago period.
Aerospace and defense companies were among the tenants signing leases in the area, a result of the federal decision not to close the L.A. Air Force Base. "The trend is due to the base in El Segundo staying open," said Sinfield. "Deals that had been in the pipeline are surfacing back into the market."
Most prominently, Northrop Grumman Corp. leased the 216,617-square foot Douglas Technology Center in El Segundo. The $12.5 million deal adds to an adjacent engineering campus held by the defense contractor; Overton Moore Properties Inc. is the landlord.
& #8226; Northrop Grumman Corp. leased the 216,617-square-foot Douglas Technology Center in El Segundo from Overton Moore Properties Inc.
& #8226; The Royal Airport Center was sold to an undisclosed buyer by Robertson Properties for an undisclosed price.
& #8226; BT-Infonet sold the 121,100-square-foot Grand Avenue
Corporate Center to Broadreach Capital Partners for $20 million.
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