Brokers Upbeat About Lockheed’s Ripple Effect on South Bay Market
The awarding of the $200-billion Joint Strike Fighter contract to Lockheed Martin is the first of several events in the next few months that are expected to rain benefits on the parched office and industrial market in the South Bay, in the form of new office sales, leasing and construction activity.
The fighter-bomber contract announced last week is “a significant victory for Southern California, and reinforces the region as a leader in aerospace and defense technology, employment and infrastructure,” said Timur Tecimer, president of Overton Moore Associates, a Gardena-based developer.
Although Lockheed Martin is expected to build the new-generation bombers primarily in Texas, a number of Lockheed’s partners in the Los Angeles area appear poised for growth. Several of those firms “are talking about taking space [in the future] and there are a couple who are clearly in the market right now looking for space,” said Steve Condon, a senior vice president at Colliers Seeley International, a Los Angeles-based real estate brokerage. “People who have buildings under construction should be optimistic,” he added.
Overton Moore’s Tecimer confirmed that inquiries “have definitely picked up over the last month,” from brokers claiming to represent aerospace tenants. Overton Moore is building two office buildings in the South Bay--a 170,000-square-foot building in Los Angeles and a 216,000-square-foot building in El Segundo--that the company says are compatible with aerospace company requirements.
Lockheed partner Northrop Grumman, which reportedly plans to hire up to 1,200 people locally for the Joint Strike Fighter project, is said to be trawling the South Bay market for 200,000 to 240,000 square feet. A company spokesman would not confirm the number.
Not all of Lockheed’s partners are growing, though. BAE Systems, a British company whose North American operations are based in Rockville, Md., said in April that it would sell its long-time Santa Monica buildings and lease an undisclosed amount of space in the South Bay. BAE’s role in the Joint Strike Fighter program does not require additional expansion, spokesman Larry Stone said.
Another subcontractor, Irvine-based Parker Aerospace, consolidated last year into 330,000 square feet in the Irvine Spectrum that the company has occupied since 1985, and does not plan expansion in the near future, a company spokesman said.
Developers and brokers sound upbeat, but not euphoric, about the prospects offered by the Joint Strike Fighter contract.
“Any ramp-up in the defense industry in the next few years--and it will take some time--will mean growth in the real estate marketplace,” said John Ayoob, senior vice president of CB Richard Ellis, a real estate firm.
At the same time, Southern California probably will not see a burst of aerospace-related leasing comparable to that experienced during and immediately after the Gulf War. “You could argue there has been some excess capacity,” he said.
Tempering the enthusiasm of the South Bay real estate industry are the earthbound numbers for this aerospace-heavy office market. In the third quarter of this year, office vacancy was a soft 13.6%, with an increase of about 46,516 square feet of empty space over the previous quarter that reflects downsizing in both aerospace and the dot-com sectors.
One reason for the swelling inventory is the result of tenants who renew leases for smaller spaces than previously. The practice, known as “dense packing,” enables companies to fit more employees into less space than before, CB’s Ayoob said.
Another potential bonanza for South Bay office developers is the scheduled construction of the 580,000-square-foot new building for the Los Angeles Air Force Base. The base, which is primarily a procurement office that administers $56 billion in defense contracts, occupies 1.1 million square feet of 1950s-era office space that is out of date both in fire safety and earthquake standards.
Several developers--the Air Force will not disclose the actual number--submitted construction proposals in September, and the military is expected to choose a developer “by early next year,” said Stephen Brey, a real estate development manager with Malcolm Pirnie, a White Plains, N.Y.-based consulting firm advising the Air Force on the construction project.
The assignment is unusual and potentially attractive to developers, because the job has several potentially profitable components: The developer not only builds new office space for the military, but also has the opportunity of exchanging surplus Air Force holdings in El Segundo, Hawthorne and Sun Valley.
