Long Beach deals outweighed by El Segundo, LAX weakness. (Real Estate Quarterly--South Bay).

The South Bay office market remained weak in the first quarter but got a lift from a bevy of deals in downtown Long Beach.

Overall, office vacancy rates dipped to 18.3 percent in the first three months of the year from 19 percent in the fourth quarter of 2002 and 19.1 percent in the first quarter of 2002, according to Grubb & Ellis Co.

Much of the quarter's activity was in lease renewals. Eric Lastition, a senior vice president at Colliers Seeley International, took heart in seeing more potential renters "kicking tires" than a year ago, when many brokers simply gave up and went on vacation.

"Just the fact that there are people out touring and looking at space is a very positive note as far as I'm concerned," Lastition said.

Nevertheless, the South Bay market, which runs from Los Angeles International Airport to Long Beach, couldn't shake the return of negative net absorption, in which more space becomes available than is rented.

Negative net absorption of 74,913 square feet in the first quarter compared with positive net absorption of 127,765 in the fourth quarter, according to Grubb & Ellis. In the first quarter of 2002, net absorption was negative 13,000 square feet.

One of the bright spots in the market was Long Beach, where five of the 10 largest new office deals in the South Bay occurred.

Engineering firm Earth Tech signed what is believed to be the biggest recent lease in the city with a 10-year deal for 100,000 square feet at Arco Center's 300 Oceangate Tower.

Other deals included Apriso Corp. signing 26,375 square feet at the Long Beach World Trade Center and China Shipping Co. landing 11,000 square feet of space at 111 W. Ocean Park Ave.

In addition, Phillips Petroleum Co. signed 26,375 square feet of space at 3900 Kilroy Airport Way near the Long Beach Airport.

Deals such as those helped vacancy rates in downtown Long Beach fall to a respectable 12.1 percent from 15.3 percent in the fourth quarter and 19 percent in the first quarter of 2002. "These larger deals have helped the expansion," said Robert Garey, a director at Cushman & Wakefield Inc.

Strengths in the downtown and suburban Long Beach market, where vacancy rates improved modestly to 10.4 percent. helped the South Bay make up for continued weakness in the El Segundo/Beach Cities and LAX/Century Boulevard submarkets.

Between Long Beach's two submarkets, nearly 200,000 square feet was absorbed during the first quarter. It didn't come close to making up for the negative net absorption in the LAX/Century Boulevard submarket of more than 260,000 square feet.

The LAX/Century Boulevard corridor has the highest vacancy rates of any submarket in Los Angeles County, despite a slight dip to 27.2 percent from 27.4 percent in the fourth quarter. El Segundo had a 24.3 percent vacancy rate, up from 23.7 percent.

Vacancy rates have risen primarily because Boeing Co. vacated 260,000 square feet in a Kilroy Realty Corp. building on Sepulveda Boulevard.

"We essentially got the entire building back, which caused vacancy rates to spike," said Jim Biondi, senior vice president at Grubb & Ellis.

El Segundo would have done worse except for three deals completed in the first quarter. including a 10-year, $9 million deal signed by Da Vita Inc., a dialysis services company, for 50,000 square feet at 601 Hawaii Street.

"We're in a very static market right now' Biondi said.

The industrial vacancy rate in the South Bay remained virtually unchanged at 4.5 percent, compared with 4.7 percent in the fourth quarter and 4.3 percent in the first quarter a year ago.

Several business owners continue to purchase rather than lease industrial space.

At the recently completed Carson Town Center, Clipper Corp., a uniform manufacturer, purchased a 21,000-square-foot building for $97 a square foot, while Agron Inc., a licensing partner of Addidas, purchased a 170,000-square-foot building for $7 million in Dominguez Hills, according to Cushman & Wakefield.

RELATED ARTICLE: Major Events:

* Earth Tech, an engineering and construction firm, signed a 10-year deal for 100,000 square feet at 300 Oceangate, also known as Arco Center, in Long Beach.

* DaVita Inc., a dialysis services provider, signed a 10-year, $9 million deal to occupy 50,000 square feet at 601 Hawaii St. in El Segundo

* Philips Petroleum signed a 27,000 square foot lease at 3900 Kilroy Airport Way near the Long Beach Airport. Terms were not disclosed.

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