Commercial activity continued to increase in the South Bay's historically weak office market during the third quarter. Mounting container volume at the ports kept industrial vacancies low.

Overall, industrial vacancy in the third quarter was 2.2 percent, identical to the second quarter as well as the third quarter of last year, according to Grubb & Ellis Co.

"I don't think you can physically get to zero," said Jesse A. Laikin, senior vice president and principal at Lee & Associates, an independent commercial real estate brokerage. "There is always some ebb and flowing."

The industrial vacancy rate has a direct correlation with the volume of goods coming in from the port. The container count for the first six months of 2006 went up 10.4 percent and the tonnage at Los Angeles International Airport went up 1.6 percent for the first six months.

"More goods are coming in and they need more trucks, more planes, more storage, more space," he said. "Demand is not going down and construction is just modest. More tenants are looking at less space."

The average asking rate for warehouse and distribution space in the South Bay region is 64 cents per square foot, up from 60 cents a year ago but down from 66 cents in the second quarter, according to Grubb & Ellis. Vacancies aren't expected to change in the near future, so prices could rise, Laikin said.

When vacancies occur, landlords are remodeling and upgrading class B and C industrial buildings so they can be leased for higher rents.

Industrial sales are slow in the South Bay because much inventory doesn't exist, say brokers. Leases for more than 200,000 square feet are hard to find. But there are some.

Among the largest deals of the quarter was the 10-year lease by HWI Metro from Sunshine Distribution LP for a 259,327 square foot property at 19400 Western Ave. for 60 cents triple net per foot per month.

AZ West CFS signed a five-year lease with owner ProLogis for a 206,483-square-foot property at 250 W. Manville St. in Compton.

Salson West leased a 203,000-square-foot property at 1331 Torrance Blvd. from AMB for 60 cents triple net per foot per month.

Although the South Bay area continues to have among the highest office vacancy rates in the county, the office market continues to tighten.

The vacancy rate in the third quarter dropped to 14.6 percent from 16 percent in the previous quarter and from 19 percent one year ago, according to Grubb and Ellis.

"There is positive general economic activity across all sectors. It hasn't been a single tenant or single industry that has been growing," said Bill Bloodgood, a senior vice president at the South Bay office of CB Richard Ellis.

The LAX/Century Boulevard sector is still the worst performing sector in the South Bay by far with 29.8 percent vacancy, down from 33.2 percent in the second quarter. But even in that area, the market is doing better than statistics would show, said Bloodgood. "That market suffers from a perceived lack of amenities."

El Segundo is an active submarket because of the large amount of quality space available, the favorable tax structure, strong amenity base, and proximity to executive housing in neighboring communities such as Manhattan Beach, he said.

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