The South Bay office market, led by accelerated demand in El Segundo, improved quite a bit in the fourth quarter, while the already tight industrial market remained flat.

At 19.9 percent, the fourth quarter office vacancy rate was 1.2 points lower than the prior period and less than a point below the mark set in the year-earlier quarter, according to data from Jones Lang LaSalle Inc. The average asking rent came in at $2.31, a penny higher than the third quarter.

Steve Solomon, managing director at Jones Lang LaSalle, said activity in the South Bay office market, which encompasses the area around and the cities south of Los Angeles International Airport, was relatively flat, except El Segundo, which has seen greater demand as tenants move into the region from the Westside, Torrance and even downtown Los Angeles.

“All markets are kind of merging into El Segundo,” he said.

Part of the reason is that El Segundo is much closer to beach cities, where company decision-makers live. In addition to more amenities in the city now than there were even a couple of years ago, Solomon said, El Segundo has no gross receipts tax, which makes doing business in the city three to four times cheaper than it is in other Los Angeles County cities.

“Other big news in El Segundo is that a lot of investors are coming in and buying older obsolete buildings that were former aerospace buildings and converting them into creative offices,” he said.

He said that he expects a lot more new or renovated office buildings to be on the market in a year or two, and rents for those buildings will be doubled.

While those conversions are feeding the office market, investment in hotel properties was notable in the fourth quarter. Three hotels traded hands for an aggregate value of more than $225 million in the last quarter of the year, all sold to Chinese investors.

On the industrial front, the fourth quarter vacancy rate remained the same as the previous quarter, at 6.4 percent, two-tenths of a point lower than a year earlier. Asking rents also held steady from the prior quarter at 58 cents, up from 55 cents a year ago.

Sales and leasing activity, however, slowed. About 2 million square feet of deals were made in this period, down from 3.3 million in the third quarter and 4 million a year ago.

It was mainly due to limited inventory, said Andrew Dilfer, vice president at Jones Lang LaSalle.

“The sales market is extremely strong and it’s extremely difficult for acquisitions,” he said.

Demand has taken just about all the Class A buildings off the market, leaving just a few “super premium” ones left, Dilfer said. That has pushed companies to turn their attention look to better-quality Class B buildings during the quarter.

The overall market benefitted from continued strong port activity, he said.

“South Bay is still extremely hot,” he said. “We are projecting solid rent growth and solid demand.”

– Kay Chinn

Main Event

  • Hazens Investment bought Sheraton Gateway Los Angeles Hotel near Los Angeles International Airport for $96 million from Long Wharf Real Estate Partners, Harp Group and Blue Vista Capital Management in November.

  • Sichuan Xinglida Group Enterprises Co. bought Torrance Marriott South Bay at 3635 Fashion Way for $74 million from Diamondrock Hospitality Co. in November.

  • New Wynn LI bought Four Points by Sheraton Los Angeles Airport for $56 million from American Property Management Corp. in December.

  • Continental Development Corp. bought Torrance Memorial Medical Center at 2841 Lomita Blvd. for $39.6 million from Torrance Health Association Inc. in November.

  • Forest City Enterprises Inc. bought Kohl’s Department Stores at 1799 Hawthorne Blvd. in Redondo Beach for $29.5 million from Clarion Partners in November.

South Bay

Industrial Market At a Glance

Inventory 161 million square feet

Under Construction 200,000 square feet

Industrial Asking Rents 58 cents

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