Office, Industrial Properties Taking Off at LAX

By NANCY RIVERA BROOKS

Oct. 29, 1997 12 AM PT

TIMES STAFF WRITER

During the dark days of 1991 when the defense industry was losing altitude and taking the Southern California economy with it, Highridge Partners bought a six-story, nearly empty office building in El Segundo, the heart of aerospace country.

All around its Continental Grand Plaza and nearby Los Angeles International Airport, the commercial real estate market was in a depression matching the problems of the defense companies that dominated the area.

But now, Highridge Partners is planning to break ground on a speculative office building next door to the Continental Grand Plaza, which enjoys a vacancy rate of only about 5%--and none of the tenants are defense-related.

“We really focus on emerging markets,” said John Long, co-managing partner of Highridge. “We took a calculated risk because . . . it was our feeling that there would be other companies coming back to take advantage of the skilled work force.”

“It terms of El Segundo, we’re kind of renaissance pioneers,” Long said. Today, “El Segundo is dynamic and the tenant profile is of the highest quality.”

As Westside housing and office prices go ever-upward, the airport area has emerged as an office value and an industrial hotbed. With the improved health of the local economy, a revival of aerospace, a surge in international trade and the Century Freeway, the area has returned to life and landlords are aggressively stealing tenants from other markets.

The southern end of the area, extending to El Segundo, has become a dynamic and diverse office market. And although the northern, LAX-adjacent area continues to lag, it is beginning to rebound in office leasing.

Industrial space is harder to come by in the area, so much so that companies needing large blocks of space are being pushed into other cities farther from the airport.

“We’re really seeing corporate America move back into the area,” said Jim Jandro, a leasing sales agent in the South Bay office of Cushman & Wakefield. Where aerospace and defense once ruled, a broad array of entertainment, high-technology, telecommunications, health-care and financial services companies have set up shop in office towers. Import-export and air freight operations dominate the industrial market.

“It is diverse and it’s pretty darn healthy,” said Terry Reitz, a senior vice president with Grubb & Ellis in the South Bay.

The overall office vacancy rate in the El Segundo area plunged to 16.6% in the third quarter from 24.5% in the same quarter last year, according to statistics compiled by Cushman & Wakefield. The vacancy rate in the newer Class A buildings is close to 5% from 25% a year ago, and rental rates in those buildings have jumped to $1.75-$2.25 per square foot a month from $1.25-$1.50 per square foot, Jandro said. Overall rental rates in the market are little changed, however.

In the immediate LAX area, which is characterized by the older Class B buildings along Century Boulevard, the rebound has been smaller but is growing. The overall vacancy rate edged down to 28.4% in the third quarter from 29% in the third quarter of 1986, according to Cushman & Wakefield.

“The LAX area happens to be the laggard,” said Jim Biondi, a senior vice president at Grubb & Ellis. “It’s more dense and it doesn’t have the warm and fuzzy feeling that El Segundo has, but it is coming back because . . . they offer low rents in reasonable buildings for people who are looking for value.”

The LAX industrial market also is staging a strong comeback with vacancy rates in the single digits. The supply of large blocks of quality industrial space--the sort of space sought by big air cargo operations--is so sparse that some companies are being pushed farther from the airport into neighboring cities.

A 71,000-square-foot speculative airfreight building is under construction in Hawthorne and other warehouses are being built or planned in Carson, Rancho Dominguez and the harbor area.

As for the aerospace industry, it refuses to be counted out. Hughes Electronics is consolidating operations into 200,000 square feet in El Segundo, and TRW recently leased 150,000 square feet in the area.

“There’s been a tremendous catharsis and a refreshing turnaround,” Biondi said.

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Airport Traffic

Led by a strong rebound in El Segundo, the office and industrial markets surrounding Los Angeles International Airport are taking off again after a nose dive caused by the recession and aerospace-industry shrinkage.

LAX area office market

3rd-quarter 1997 vacancy rate: 28.4%

3rd-quarter 1996 vacancy rate: 29.0%

3rd-quarter 1997 average overall rental rate: $1.15 per square foot

3rd-quarter 1996 average overall rental rate: $1.23 per square foot

Net absorption* year-to-date: 18,127 square feet

El Segundo office market

3rd-quarter 1997 vacancy rate: 16.6%

3rd-quarter 1996 vacancy rate: 24.5%

3rd-quarter 1997 average overall rental rate: $1.50 per square foot

3rd-quarter 1996 average overall rental rate: $1.51 per square foot

3rd-quarter 1997 inventory: 8,808,494 square feet