The fourth quarter was a picture of continued health for the South Bay’s strong industrial market, less so for office properties.
The South Bay industrial market in the quarter had fewer vacancies, rental increases and a significant jump in building sales and leases when compared with the same period last year, according to data from Jones Lang LaSalle Inc.
The industrial vacancy rate has been more than halved in the last year, dropping to 2.9 percent in the fourth quarter from 6.4 percent a year ago. It stood at 3.8 percent at the end of the third. The office market, despite seeing 177,000 square feet of vacant space taken off the market by new leases, still sported a whopping 21.6 percent vacancy rate, the highest in Los Angeles County.
“The best thing is that this is a diversified economy and it’s really hitting on all cylinders,” said Kurt Strasmann, senior managing director of CBRE Group Inc. for Southern California’s industrial market. “It is the most sought-after market (in the country) for investors looking to invest in an industrial market.”
Strasmann said industrial sales activity was hot last quarter, reflecting limited supply and the rising interest over the past two to three years. Indeed, just 385,000 square feet of industrial space was under construction in the quarter, hardly enough to make a dent in the 182 million-square-foot market.
Adding to the appeal for investors have been rising asking rents for the submarket’s industrial property. In the fourth quarter, asking rents inched up a penny from the prior quarter to 62 cents a square foot a month.
“Vacancy rates are declining and lease rates have appreciated,” he said. “We expect lease rates to increase 5 to 10 percent going forward, depending on location and property quality.”
The biggest industrial deal of the year happened in the fourth quarter, when Scottsdale, Ariz.-based automotive technical school Universal Technical Institute signed a 15-year lease for a 137,000-square-foot flex-style building under development in Douglas Park at Long Beach Airport by Sares-Regis Group of Irvine. The build-to-suit lease agreement with UTI is valued at more than $30 million, and UTI is set to occupy the space by the middle of the year.
On the office front, El Segundo was the bright spot, seeing 145,000 square feet of net absorption on a market base of 9.8 million square feet. That brought its vacancy rate down to 16 percent, a full point and half below the prior quarter’s number. Rents have inched up as well, with an average asking rate of $2.70 a foot a month, up 3 cents from the previous quarter and 8 cents from a year earlier.
Jason Fine, vice president-national director of JLL, attributed the allure of El Segundo to the volume of redevelopment of old properties under way.
“A year ago we were all wondering what demand was going to be for these spaces,” Fine said. “And there’s still a lot more that’s going to be signed.”
Tom Sheets, senior director of Cushman & Wakefield Inc.’s South Bay office, pointed to a recently closed lease deal at Apollo at Rosecrans, 800 Apollo St. in El Segundo, that signed at nearly $3 a square foot with some services paid for by the tenant.
“That is certainly the high-water mark in the South Bay,” Sheets said.
– Carol Lawrence
XLD Group, a subsidiary of Sichuan Xinglida Group Enterprises Co. Ltd., bought Los Angeles Airport Marriott, a 1,004-room hotel at 5855 W. Century Blvd. in Los Angeles, for $160 million from DiamondRock Hospitality Co. in December.
Costco Wholesale Corp. bought a 23.4-acre lot at 2740 Lomita Blvd. in Torrance for $42 million from Rockefeller Group Development Corp. in December.
Bascom Group bought San Pedro Bank Lofts, an 89-unit, two-building, Class A apartment complex at 407 W. Seventh St., for $23.8 million from Winthrop Realty Trust in October.
Paragon Commercial Group bought a former automobile dealership building at 707-801 N. Sepulveda Blvd. in Manhattan Beach for $19.4 million from Baher Properties in November.
Montana Avenue Capital bought the Landing at 20/40, a Class B office building at 2040 E. Mariposa Ave. in El Segundo, for $18.2 million from Legacy Partners Commercial Inc. in October.
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