Small Users Help Turn El Segundo Into L.A.’s Hottest Office Market

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Pop quiz: Which area has the healthiest office market in Los Angeles County? Here’s a hint: It’s not Santa Monica, Beverly Hills or West Hollywood, all recent contenders for the title.

Here’s another: It’s a beachside community that’s close to LAX and, though once dominated by the aerospace industry, is now drawing advertising agencies, TV networks and professional service firms.

Over the past year, El Segundo has seen its vacancy fall from nearly 15 percent to less than 10, making it the tightest office market in the county, according to figures from Jones Lang LaSalle Inc.

Still, El Segundo couldn’t lift the overall South Bay office market out of the doldrums. The region’s vacancy rate fell just six-tenths of a point in the third quarter to 20.2 percent.

The market absorbed 135,000 square feet of space, but without El Segundo’s performance, the South Bay actually gave back more than 110,000 square feet.

The much tighter market in El Segundo is largely the result of a nearly $400 million lease DirecTV signed at the city’s Kilroy Airport Center last year. The satellite TV provider moved into some of that 630,000 square feet in the third quarter, helping lower El Segundo’s vacancy rate to 9.3 percent.

But brokers say other, smaller users are also helping the market, which was once dominated by aerospace companies.

Gary Horwitz, a broker in Jones Lang LaSalle’s downtown L.A. office, said El Segundo landlords are seeing interest from ad agencies, design firms and tech companies.

“There’s definitely a trend in El Segundo to attract new creative companies,” Horwitz said. “The thought is it could be the next Silicon Beach.”

Indeed, some of the interest in El Segundo is from tech firms looking for cheap space for call centers, customer service or other operations. Average rents in El Segundo are not only about $2 cheaper per square foot than in Santa Monica, but they’ve also been more stable, rising only a penny over the past year while Santa Monica’s have risen 50 cents.

But creative firms aren’t the only ones moving in. Alex Rose, a senior vice president with Continental Development Corp. in El Segundo, which manages 3 million square feet of office space, said law firms, accountants and business consultants are looking.

“It used to be you’d see aerospace, defense and financial services,” he said. “You wouldn’t find too many lawyers or accountants or advertising agencies. Today it’s much more reflective of the L.A. metro economy.”

Main Events

Online marketing firm Wpromote renewed its lease at 1700 E. Walnut Ave. in El Segundo. The 21,300-square-foot deal is worth about $500,000 annually. Further details of the transaction were not disclosed.

Travel agency Pinnacle Travel Services LLC signed a lease for 25,400 square feet at 390 N. Sepulveda Blvd. in El Segundo. The seven-year deal, valued at about $5 million, includes building-top signage. 

DirecTV Inc. moved into a 293,000-square-foot building at 2260 E. Imperial Highway in the Kilroy Airport Center. The company signed a lease for that building and two others in November 2011 and has been gradually moving into the new space. Gary Horwitz of Jones Lang LaSalle said the move-in accounted for most of the drop in El Segundo’s vacancy rate in the third quarter.

Irvine landlord and developer Bixby Land Co. purchased the 292,000-square-foot South Bay Tower at 21250 Hawthorne Blvd. in Torrance for $52 million from investor TA Associates. The eight-story building is about 60 percent leased. Bixby plans to fill empty space with the same type of users that brokers say are moving to El Segundo. It is turning two vacant floors into suites sized between 2,000 and 15,000 square feet that it hopes to lease to law firms, ad agencies and small tech companies.

The FBI signed a 15-year lease for 23,300 square feet of office space at 4811 Airport Plaza Drive in Long Beach, a building vacated by Boeing Co. last year. Other tenants in the building include Verizon and the Department of Veterans Affairs. The deal was valued at about $10 million.

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