The decline of aerospace and persistent unemployment issues continued to drag on the South Bay’s commercial real estate market in the first quarter, with vacancy rates increasing as companies put industrial and office property on the market.

On the office front, vacancy rates increased to 21.6 percent in the first quarter from 20.8 percent in the same period last year. Overall, 247,282 square feet of office real estate went back on the market in the quarter, led by El Segundo, which gave back 286,636 square feet.

Steve Solomon, managing director at Jones Lang LaSalle Inc., said the South Bay, and especially El Segundo, will continue to struggle as aerospace companies downsize in lockstep with the shrinking federal defense budget. Northrop Grumman Corp. recently moved out of its 335,000-square-foot office building in El Segundo, moving 1,000 employees to Redondo Beach. That continued a trend that includes Boeing Co.’s 900 jobs cut in Long Beach in 2011.

“The general market still relies on aerospace,” Solomon said. “We’ve seen Boeing and Northrop consolidating still. That’s still the major reason the vacancy rates have gone up.”

And there’s more pain ahead for aerospace. Raytheon Co. last month announced plans to eliminate a business unit at its big El Segundo space, cutting 200 jobs.

Solomon said the South Bay unemployment rate, still above 10 percent, will have to drop significantly before vacancy rates decrease and asking rents increase.

“The big picture in office is still unemployment,” he said. “Things are getting a little better but we aren’t seeing any major change.”

He pointed out that companies are willing to spend money on buildings that can be converted to creative space.

Industrial real estate, which relies heavily on activity at the ports, also failed to improve. The first quarter vacancy rate increased slightly to 5.6 percent from 5.4 percent in the year-earlier period and asking rents fell 1 cent year to year to 56 cents a square foot.

Jim Biondi, executive managing director at Newmark Grubb Knight Frank, said the quarter was disappointing, as sales and leasing activity in the first quarter fell to 1.4 million square feet from 4.1 million square feet the year earlier.

He said continued uncertainty over the economy and the local business climate has made companies think twice about moving or expanding – or about doing business in Los Angeles at all, opting to move to other counties and states.

“There’s so much uncertainty,” he said. “That attitude is pervasive with businessmen that make decisions about whether to expand or move.”

– Ryan Faughnder

Main Events

*Glendale’s Public Storage bought a 83,154-square-foot industrial building at 4880 Rosecrans Ave. in Hawthorne last month. The company paid $10.9 million for the space that failed to sell to an industrial buyer.

*UMA in January agreed to rent 105,185 square feet in Compton from Prudential Real Estate Investors. The 350 W Apra St. property is an older Class B building and is leasing at 41 cents a square foot.

*YS Garments Inc. in February leased 91,320 square feet of industrial space from Carson Cos. in Gardena. The Class A building, at 15730 S. Figueroa St., is on more than 201,000 square feet of land and is one of the largest developments in the South Bay.

*CenterPoint Properties in January purchased a 115,000-square-foot industrial building in Rancho Dominguez for $27.3 million. The seller of the Class B building, erected in 1970, was 3Plus Logistics, which used the building for its corporate headquarters and warehousing.

*A 12-year-old, 171,000-square-foot building in Torrance sold to Scott T. Barnes for $17.6 million. The seller was Irvine’s Cornerstone Core LLC.

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