These Trying Times : Job Security Evaporates as Economic Ripple Effect Hits Home : Until the turnaround comes, however, the South Bay will continue to feel the recession in several areas: Office Vacancies

One out of five offices in the South Bay lacks secretaries, desks, telephones or even paper clips. In fact, it is completely empty.

The economic slowdown of the last year has boosted the South Bay’s office vacancy rate to 19.7% for the first quarter of this year, up from 17% during the same period last year.

Pacific Place in San Pedro, for example, has not found tenants for 28% of its space since it opened for business last July. Even so, the vacancy rate in the 11-story office tower would have been three times higher had the developer not pre-leased nearly two-thirds of the building to a defense software company.

Real estate experts say office vacancy problems can be traced to overbuilding that took advantage of the savings and loan industry’s liberal underwriting practices throughout the 1980s. But the South Bay, with its many aerospace-related companies, has been especially hard-hit by defense industry cuts.

“We’ve had our share of overbuilding like every other region in the United States,” said Jim Biondi, senior marketing consultant for Grubb & Ellis’ South Bay office. “But other areas are not as affected as much as we are by the (decline in) defense contracts.”

After laying off employees, aerospace companies have been offering subleases on their unused office space, flooding the market with more than 1 million square feet of space in the first quarter of 1991, compared to 738,000 square feet during the same period the year before.

Hughes Aircraft Co. alone has three buildings, or a total of 500,000 square feet of sublease space, on the South Bay commercial real estate market, spokesman Richard Dore said.

“In the mid-1980s, when Hughes had 80,000 employees, all the Department of Defense projections back then were for continued business,” Dore said. Now that the company has about 68,000 employees, “we simply have more space than what we needed in the mid-’80s, when we were kind of busting at the seams,” he said.

The oversupply of office space has driven down median rental rates, so that landlords today receive between 10% and 15% less than they did for the same office space two years ago, Biondi said. At the same time, new construction of office space virtually ceased in 1990.

In the next year, however, several office buildings are scheduled for completion. Among them are Continental Park V, a terraced, four-story building project in El Segundo, which will offer 190,000 square feet of office space, and Oceangate Commerce Center, a Hawthorne redevelopment project that will have 180,000 square feet of office space.

Although some worry that the new buildings will further depress the market, others remain optimistic that the South Bay’s office vacancies will be absorbed by new tenants as the economy stabilizes in the next year.

“We don’t feel it’s necessarily bad timing,” said Bob Inch, director of real estate for the Continental Development Corp. in El Segundo, which is developing Continental Park V. “It’s a quality building, and there will always be a need out there for office space.”

Robert W. Comstock, managing partner of Comstock, Crosser & Hickey, which is developing Oceangate, agreed.

“We have seen an improvement in the attitude and the activity level in the last 30 days. People are a lot more positive on their projections for the coming year,” Comstock said. “. . . We think we are going through some rough times, maybe for the next 12 months, but we see it improving dramatically after that.”

Times staff writers Gerald Faris, Shawn Hubler, Deborah Schoch and Tim Waters contributed to this story.

Office Occupancy

The office rental market in the South Bay is in a severe downturn. Vacancy rates have risen in the past year, and are now the highest in the county. In addition, cutbacks in defense contracts coupled with a general slowdown in other business has forced the area’s many aerospace companies to offer unused office space for sublease. The two-fold problem has driven down lease rates by 10% to 15% from their peak two years ago, say experts.Those factors have occurred while new office construction has virtually ceased in 1990. Although some in the office lease industry fear new construction will further depress the market, others remain optimistic that the economy will improve during the next year and the area’s office vacancies will be absorbed by new tenants.

Rentable Space % Vacant Leased Space/ Available for Sublease 1989 21,658,791 20.92 n/a 1990 21,230,666 17.04 738,736 1991 21,455,757 19.70 1,021,950

Figures, in square feet, are for the first quarter of the year.

Source: Grubb & Ellis