Last year started with hopes of a good year at the ports, which translated into deals in the South Bay’s industrial market.
That optimism tapered off through the middle of the year, but it seemed to be coming back in the fourth quarter as tenants and buyers absorbed 631,000 square feet. The market gave back about 390,000 square feet the previous quarter, according to Jones Lang LaSalle Inc.
“It was a healthy quarter. There are more deals getting done,” said Jim Biondi, a senior vice president with Grubb & Ellis Co.
The health of the sprawling South Bay market is closely tied to volume of cargo moving through the ports. Much of the space taken during the fourth quarter was in less expensive Class B buildings, a sign that companies are expanding but aren’t sure port volumes will justify more expensive Class A space, said Barry Hill, a senior vice president at Jones Lang LaSalle.
When cargo traffic was growing in the first half of last year, more companies started taking advantage of relatively low Class A rates, but as traffic slumped, Hill said he saw much more demand for Class B properties.
“That slowdown in port volume and Class A activity was parallel to our debt crisis and then the European debt crisis,” he said. “That hurts corporate confidence and ultimately companies start tightening their purse strings.”
That trend has kept Class A rates relatively stable, while Class B rates have gone up from 40 cents a square foot in the middle of last year to about 46 cents now, Hill said.
All the sales and lease activity in the fourth quarter lowered the South Bay’s vacancy rate by nearly a half-point to 5.8 percent, though that’s down just one-tenth of a point from the end of 2010.
“If you just average out the last 180 days, it kind of reverts to the mean. It was just kind of a flat year,” said broker Eric Knirk of Fremont Associates in Torrance.
Flat would have been a marked improvement for the South Bay’s office market, which saw 202,000 square feet go back on the market, raising the vacancy rate by more than a half-point to 21 percent.
A bright spot in the market, though, was El Segundo, which absorbed 18,000 square feet and was home to a DirecTV office lease, which was the state’s largest last year.
Gary Horwitz, a managing director at Jones Lang LaSalle, said El Segundo has benefitted from firms relocating from pricier Westside markets, but noted that those firms are less likely to go farther south.
DirecTV expanded its presence in El Segundo, signing a 15-year lease for 630,000 square feet of office space – with 93,000 more to come – at the Kilroy Airport Center, located at 2230 E. Imperial Highway. It’s the largest lease deal signed in California since 2000. One estimate valued the lease at $400 million.
Mattel Inc., headquartered in El Segundo, renewed a lease on its design center at 2031 E. Mariposa Ave. in that city. The deal will keep the company in the 192,000-square-foot converted industrial building for 15 years.
German firm Schenker Logistics leased 150,000 square feet from Watson Land Co. at 22941 S. Wilmington Ave. in Carson. The lease starts at 53 cents a square foot in a Class B building, just a few cents lower than the region’s average asking rate for Class A properties. The five-year deal is worth upwards of $4.5 million.
Long Beach trucking firm California Cartage Co. leased 315,000 square feet from ProLogis at 22351 Wilmington Ave. in Carson. The 10-year-deal is for 59 cents a square foot, valuing it at roughly $22 million.
Xebec Realty Partners, a Seal Beach real estate investor, purchased the former Ball Corp. aluminum can manufacturing plant in Torrance for about $20 million in October. The 500 Crenshaw Blvd. plant was shuttered last year as Broomfield, Colo.-based Ball moved production to Texas and Canada. Xebec plans to demolish part of the plant and develop 440,000 square feet of Class A industrial space.