Industrial buyers seek rehabs while office market stagnates.

DEVELOPERS' appetite for industrial and warehouse space in the South Bay and Carson pushed vacancy rates to historic lows in the fourth quarter, while industrial leasing activity surged.

Little changed, though, in the South Bay's long-moldering office market, where vacancies rose above the 20 percent mark and tenants deserted some areas.

Industrial vacancies fell to 2.6 percent in the fourth quarter, from 2.7 percent in the previous three months and 4 percent in the fourth quarter of 2003, according to Grubb & Ellis Co.

Asking rents in the South Bay industrial market rose to 54 cents per square foot, up 1 cent sequentially. Sales prices in parts of Carson were above $90 per square foot.

"Buyers can't find properties," said Jesse Laikin, senior vice president and principal at Lee & Associates, based in Gardena.

"There's a scarcity of product, a huge demand to buy and interest rates are still historically low."

Some of the South Bay industrial market is characterized by downtrodden properties and warehouse space that developers are snapping up with the intention of tearing down and rebuilding. Others are being refurbished or turned into warehouse space.

Included in that category was Illinois Tool Works' sale of a 159,000-square-loot building at 19600 S. Alameda St. in Compton for $7.1 million to Black Equities. The property is being converted to warehouse use.

The McDaniel Family Trust sold a building at 20501 Main St. plus 12.5 acres of land in Carson for $14 million to Carson Storage Venture.

Other industrial transactions included the $12.4 million sale of a 219,000-square-foot building at 100 W. Victoria St. in Long Beach by Proficiency Capital of Los Angeles. Bell Business Centers was the buyer. Bacon Trust sold a 115,375-square-foot building in Carson for $7.8 million to Gold Point Transportation.

There were also a few major industrial leases. Watson Land Co. signed a 10-year, $10 million deal with skin care company Dermalogica to build a 150,000-square-foot preleased building at 1535 E. Beachey Place in Carson.

In Redondo Beach, global shipping firm DHL leased 168,000 square feet at 4000 Redondo Beach Blvd. for an undisclosed amount. And Frontier Container leased 166,000 square feet on Western Avenue near LAX at 47 cents per square foot.

Office blues

While the industrial and warehouse market thrives, South Bay's office market continues to lag, with little dealmaking. Though some property managers and developers expect a turnaround in the second half of 2005, with an increase in rents and fewer give-backs, the market remains tough.

The office vacancy rate jumped to 20.6 percent in the fourth quarter from 19.3 percent in the July-September period and 19.7 percent in the year-ago quarter.

The worst sub-market continues to be the area that encompasses Los Angeles International Airport and Century Boulevard. The office vacancy rate there jumped to 36.7 percent in the fourth quarter, up from 29.5 percent in the previous period.

Vacancy rates in the El Segundo submarket dipped slightly to 22.2 percent while downtown Long Beach's vacancy rate reversed course, climbing 4.6 percentage points to 17.2 percent in the fourth quarter from 12.6 percent in the third.

"We're .just going to slug it out for the rest of the year in the South Bay," said Jim Biondi, senior vice president at Grubb & Ellis. "With a vacancy factor above 20 percent, we're not going to get down to a 10 percent vacancy rate anytime soon. And I just don't see rents going up either."

The South Bay office market posted negative net absorption of 288,963 square feet in the fourth quarter, an indication that tenants moved out of the area when their leases expired. That compares with positive net absorption of 76,971 square feet in the third quartet.

In the LAX/Century Boulevard submarket, net absorption was negative 279.701 square feet.

Biondi believes the South Bay office market will show some improvement over the next year, but he noted that the area does not have the same dynamics as many other areas of Los Angeles, particularly downtown. Class-A buildings in the area are expected to fare better than Class-B buildings.

"Demand has been better, there's more activity, more traffic, more showings--so all the signs bode well that we'll see better absorption this year than last year," he said. "Them may be pockets, case-by-case situations where the rent will go up, but nothing significant."

Major Events:

* Illinois Tool Works sold a 159,000-square-foot building at 19600 S. Alameda St. in Compton for $7.1 million to Black Equities, which plans to convert it to warehouse use.

* The McDaniel Family Trust sold a building at 20501 Main St. in Carson plus 12.5 acres of land for $14 million to Carson Storage Venture.

* Proficiency Capital sold a 219,000-square-foot building at 100 W. Victoria St. in Long Beach for $12.4 million to Bell Business Centers.

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