The real estate rebound being seen elsewhere in the Los Angeles area is taking its time in the South Bay, where overall office vacancy rates are the highest in the county.
Along the Century Boulevard corridor near Los Angeles International Airport, the office vacancy rate is a sky-high 35.1 percent up from 33.7 percent in the second quarter.
Still, real estate brokers say the market generally is heading in the right direction. In the third quarter of 1996, the vacancy rate for Century Boulevard/LAX was 38.2 percent.
And there were some bright spots. Along the San Diego (405) Freeway corridor in Torrance, office vacancy dipped from 28.3 percent to 21 percent.
Helping lower that rate was Toyota Motor Sales USA Inc., which leased an additional 35,000 square feet in the South Bay Corporate Center in Torrance, and Healthcare Partners Inc., which leased 12,000 square feet to add to the 42,000 square feet it leased earlier in the year in the Pacific Gateway II office center in Torrance.
For the South Bay as a whole (including Long Beach) there was a net absorption of 131,620 square feet in the third quarter.
“Year to date it’s 386,000 square feet (absorbed), which is good,” said Jim Biondi, senior vice president of Grubb & Ellis Inc. “There’s a 21.8 percent vacancy rate for the whole bay. In the third quarter 1996 it was 23.3 (percent).”
In El Segundo, DirecTV, a unit of Hughes Electronics Corp., signed a lease for 158,660 square feet in a five-year deal valued at over $15 million, for the 200 N. Sepulveda Blvd. Pacific Corporate Towers building, according to Grafton Tanquary, first vice president of CB Commercial Real Estate Group.
The lease, which relocates and consolidates the company’s Long Beach operation, increases occupancy at the highrise to more than 80 percent. Pacific Corporate Towers is a 1.6 million-square-foot, three-tower complex at 100, 200 and 222 N. Sepulveda Blvd.
In addition, long-term leases for Aetna Inc., United Airlines, and Information Resources Inc., valued at a combined total of $9.3 million, also were signed for the 200 N. Sepulveda building. Aetna relocated its claims office from West Los Angeles into 23,860 square feet for five years, with a total transaction value of $2.5 million.
United Airlines plans to move its reservations center into 14,714 square feet in a 10-year lease valued at $2.8 million. Information Resources, a statistical research and data company, relocated from Manhattan Beach into 19,377 square feet.
There were also some encouraging signs in the retail and industrial sectors.
The retail market in South Bay “is definitely coming back, but it starts from a low abyss,” said Ted Lawson, senior vice president of retail for CB Commercial.
“It was by far the hardest-hit in the recession of any area in Los Angles County or in California as a whole. It was deeper than people appreciated,” he said. “Now there is a lot of activity.
The drawback is “we have a lot of product, it’s just the wrong product. We used to build for mom and pops. There’s a lot of that left that needs to be recycled,” Lawson said.
Construction is underway on the Long Beach Towne Center, a 1 million-square-foot retail development scheduled for completion by April 1998. Vestar Development Co. of Phoenix is developing the project.
At the Rolling Hills Plaza Shopping Center on the Pacific Coast Highway in Torrance, a six-plex theater is being converted to a 20-plex and new restaurants are being added by Norman LaCaze Developers.
At the nearby Gallery of South Bay, a 16-plex theater is under construction on top of a parking structure. It is being developed by Forest City Enterprises.
The concentration of REITs trying to buy supermarket-anchored centers has pushed cap rates down and raised prices, according to Lawson.
“The competition is enormous to buy anchored centers. REITS can afford to. They are all trying to grow toward the magical $1 billion mark, where they can get financing at a much cheaper rate.”
Money is being “pushed on us from every direction,” Lawson added. “But we’re not quite yet ready to build spec retail, like they are in industrial.”
Industrial sales and leases were extremely active in the third quarter, with 3.1 million square feet of existing building space absorbed, according to Jeff Morgan, CB Commercial senior vice president.
Much of that can be attributed to foreign trade, he said.
“Activity in the ports and increased traffic in LAX cargo is propelling the growth,” Morgan said.
Grubb & Ellis put the industrial vacancy rate at 6 percent, down from 6.7 percent in the second quarter and 8.1 percent in the third quarter of 1996.
This mirrors the generally strong industrial market countywide, where the vacancy rate is 6.6 percent down from 7.3 percent a year ago.
The tight industrial market is spurring new development in the South Bay.
“Speculative development of new industrial buildings will be kicked off by construction of over 2 million square feet of development, most notably the Fremont property,” Morgan said.
Torrance-based Fremont Associates is scheduled to begin grading this month for its 1.5 million-square-foot development at the southeast corner of 190th Street and Western Avenue in Los Angeles, just across the street from the Torrance city limits.
The availability of good-quality, functional buildings is at a 12-year low, according to Morgan.
“Rehabilitation or demolition of older buildings will be the next wave of development, as institutional money seeks to join in the market, which will see increasing rents, land values and higher sale prices for existing product,” he said.
In less than six months, there has been a reverse in supply and demand for apartments, according to John Blignaut, an associate with CB Commercial.
“There had been a big supply of REOs (real-estate-owned apartment buildings, or foreclosures) and not many buyers,” Blignaut said. “In the spring we saw a supply dropoff while the buyers increased dramatically. There was a quick reversal because of the local economy and the Los Angeles economy in general, which has been adding jobs rapidly.”
Occupancy is up to the mid-90 percent range from the mid- to upper-80 percent range, but “east of the 405 (San Diego Freeway) remains a weak market,” Blignaut said. “The west is strong. It’s not homogeneous. The rental increase west of the 405 is starting to drive up values. Now new units makes sense, but there’s nowhere to build.”
In the past, other cities have allowed higher density, but that created an oversupply and put a tremendous burden on public services, Blignaut said, and “cities will not make the same mistake again.”
One possibility might be to make use of unused industrial real estate, but it’s the wrong product for the apartment market, he said.
“Major developers are saying, ‘Use aerospace industry dirt, rezone,’ but it’s pretty difficult to put apartments in an industrial neighborhood,” he said.
The real opportunity is in upgrading existing property, according to Blignaut. “Many buildings were built in the late 1960s and early 1970s and have dated amenities. If developers upgrade, residents would pay more rent.”
– DirecTV signed a lease for 158,660 square feet in a five-year deal valued at more than $15 million for the 200 North Sepulveda Blvd. building at Pacific Corporation Towers in El Segundo. Aetna, United Airlines and Information Resources Inc. also signed new leases for the building.
– Fremont Associates was scheduled to break ground on a 1.5 million-square-foot industrial project along the Los Angeles-Torrance border.
– At the Pacific Coast Highway Rolling Hills Plaza Shopping Center in Torrance, a six-plex theater is being converted to 20 screens and new restaurants are being added by Norman LaCaze Developers. The project is located on North Pacific Coast Highway at Crenshaw Boulevard.
– Toyota Motor Sales USA Inc. leased an additional 35,000 square feet in the South Bay Corporate Center in Torrance.