Third-quarter numbers for South Bay’s office and industrial markets indicated promise in some areas and room for improvement in others as vacancy rates fluctuated and rents remained stagnant.
While the suburban Long Beach and Beach Cities office submarkets saw lower vacancy rates, numbers for the wider South Bay office market rose to 22.3 percent, up from 21.9 percent from the previous quarter, according to data from Jones Lang LaSalle Inc.
But numbers don’t tell the full picture, said Jason Fine, a JLL vice president and national director. Vacancy rates have indeed gone up, but that’s largely due to the reclassification of newly redeveloped buildings coming on the market.
“The good news is that we have a lot of demand and increased activity, and a lot of (vacancies are) going to get filled quickly this year and early next year,” Fine said.
On the industrial side, vacancies have dropped significantly since last quarter to 3.8 percent from 5.1 percent, putting it more in line with other L.A. markets.
Despite that good news, asking rents have plateaued at 61 cents a square foot, unchanged from last quarter. Jones Lang LaSalle Executive Vice President Luke Staubitz attributed the situation to pressure on tenants to keep prices low for consumers, which put downward pressure on how much they were willing to spend on rent.
Staubitz said he was encouraged by the volume of activity he saw in the third quarter, however.
“It’s one of the busiest summers I can remember since the last peak in 2007, early 2008,” he said.
The amount of industrial space sold and leased rose even as, at 3.8 percent vacancy, there is less room for tenants to take large amounts of contiguous space, and July and August are typically sluggish months. Significant developments included FNS Inc. leasing a 272,000-square-foot Class A building in Torrance and Mainfreight leasing a 183,000-square-foot Class A building in Carson. Chamber Street Properties purchased two properties totaling 462,000 square feet in Hawthorne for $46.7 million.
In the office the market, much of the redevelopment under way is concentrated in El Segundo, where some tech and media companies are looking to buy and lease. Rents have only increased by a cent to $2.40, but that could change if demand increases as some expect it will.
Fine said the best indicator of where the market is headed in quarter four is all the presale activity and speculative development in the works. One notable deal was American Realty Capital Properties Inc.’s purchase of the 15-story, 333,000-square-foot Continental Tower in El Segundo for $98 million, according to CoStar Group Inc.
PM Realty Group Senior Vice President Mark Mattis has a more reserved outlook.
“I think we’ll continue to see a steady increase in small- to medium-sized tenants looking for alternatives in South Bay from areas like the Westside,” he said, adding that he’s yet to see any blockbuster deals that indicate the large-scale migration some landlords are preparing for.
– Cassie Paton
American Realty Capital Properties bought Continental Tower, a Class A office building at 101 Continental Blvd. in El Segundo, for $98 million from Prudential Real Estate Investors in July.
Chambers Street Properties bought two properties at 1 Rocket Road and 3109 Jack Northrop Ave. for $46.7 million from Westport Properties Inc., Strategic Storage Trust Inc. and USA Hawthorne LLC in August.
Redwood Partners Inc. bought the Lofts at Promenade, a 104-unit apartment building at 210 E. Third St. in Long Beach, for $36.5 million from Cornerstone Real Estate Advisors in September.
Habibollah and Lida Naeimollah bought a Class C office medical building at 23560 Crenshaw Blvd. in Torrance for $13 million from Jerome H. Unatin in August.
KL Plaza LLC bought Carpenter Village, a retail neighborhood center at 2808-44 Sepulveda Blvd. in Torrance, for $11.5 million from Carpenter Center LLC in August.
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