Office, Industrial Leases Leave a Muddled Real Estate Picture : Economy: Market indicators show that companies are staying in the South Bay but that many firms are still cutting back operations.
In an industrial park near the ARCO refinery in Carson, workers are renovating a warehouse that, vacant for almost three years, will soon house one of the nation’s largest and fastest-growing vitamin makers.
In El Segundo, the heart of the South Bay’s aerospace industry, a 475,000-square-foot office building has been vacant since defense giant Hughes Aircraft Co. left six months ago.
Such is the muddled picture of office and industrial real estate in the South Bay. On the one hand, brokers and landlords who sell and lease industrial space are busier than they have been in years.
But the same can’t be said for those trying to fill office space. Leasing has been flat and could get worse as aerospace firms continue to bolt in the lingering recession.
“The next year will be pretty much the same,” said Jim Biondi, senior vice president at Grubb & Ellis Co. of Torrance, a real estate brokerage firm. “But we’re restructuring and developing a more diversified employment base in the South Bay, which is really the epicenter of the recession in Southern California.”
Commercial real estate activity is one indicator of the region’s economic health. Some see the increase in industrial activity as a sign that companies are staying in the South Bay, but the flat report in office leasing shows that many firms are still cutting back operations.
Brokers have had the most success in leasing industrial space, such as warehouses and factories, to consumer products firms, apparel manufacturers and transportation-related companies.
The vacancy rate for industrial space is expected to be 13.1% in the South Bay at year’s end, about the same as last year, according to Grubb & Ellis. An estimated 8.2 million square feet of space has been leased, up slightly from 8 million square feet in 1992.
Most of the deals have been signed in the Carson and unincorporated Rancho Dominguez area, where the bulk of the South Bay’s industrial space is located.
The Watson Land Co., which owns and manages 9 million square feet of space, said its vacancy rate dropped from 15% at the start of the year to just below 9% this month.
“The market is becoming far sounder than statistics would leave you to believe,” said Watson President Richard Cannon. “No one is predicting a big turnaround in 12 months, but there will be a very slow, strong, steady growth.”
Watson has leased space to 7-Up/RC Bottling Co., apparel manufacturer Beach Patrol Inc. and the Direct Container shipping company.
But its biggest lease was to Leiner Health Products, a vitamin maker that will move from Torrance to a Carson industrial park operated by Watson. It will occupy a building with almost half a million square feet.
“The consumer-product companies are leading the pack,” said Anthony Manos, vice president of marketing and leasing for Watson. “These are all household names. People need to be clothed and fed.”
Still, Watson has had a large amount of space on its books for several years, brokers say.
“They had a tremendous amount on the market to start with,” said Biondi of Grubb & Ellis. “They were bound to make deals because they had very good (space for lease) and good pricing.”
Overall, prices for industrial space dropped or were flat in the South Bay. The average monthly rent was 29 cents per square foot, not including the cost of taxes and other expenses, according to John R. Carver, vice president at The Seeley Co. in Torrance, a real estate brokerage firm. That is one cent lower than in 1992, he said.
“We are starting to see some of the companies expanding or even migrating to the South Bay,” Carver said. “The prices are so cheap, they can now consider moving here rather than places like Riverside County.”
Still, about 79% of this year’s leasing and sales were to companies already in the South Bay, including companies moving to smaller buildings, Carver said.
To be sure, the lower prices can be a selling point in keeping companies in the South Bay or even luring new ones. MPA, an auto parts and accessories manufacturer in Santa Fe Springs, moved to a smaller 160,000-square-foot space in Torrance.
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While the industrial market shows hints of prosperity, brokers and landlords are having a more difficult time leasing or selling office buildings.
On Century Boulevard near Los Angeles International Airport, some buildings, such as the Union Bank Center, are almost completely vacant.
Throughout the South Bay, 6.7 million square feet of office space is on the market, compared to 6.5 million square feet a year ago, according to Grubb & Ellis. The vacancy rate is projected to be 22.4%, compared to 21.8% a year ago.
That could get a bit worse in 1994 if aerospace company leases due to expire are not renewed.
“It’s not like more jobs will be lost and more people will be laid off,” said Michael Condon, vice president at The Seeley Co. “That has already happened. We’re just waiting for leases to expire.”
Some building owners are trying to change with the times.
Continental Park Plaza, a 475,000-square-foot office building at the northwest corner of Rosecrans Avenue and Nash Street in El Segundo, is being remodeled at a cost of $7 million in the wake of TRW’s departure last year and Hughes’ departure earlier this year.
In 1994, the owners plan to market the 10-year-old building to companies that need smaller space, or to professionals. A Wolfgang Puck eatery will be on the ground level.
“With TRW and Hughes, we anticipated that once they were in the building they would be there for many, many years,” said Richard Lundquist, president of Continental Development Corp., which owns the building. “But we didn’t anticipate this significant of a downsizing. I just hope we don’t have the situation again in the coming year.”
