Some relief to lethargic lease activity from small businesses.

WHILE the South Bay leasing market remains in the doldrums as a whole, small businesses continue to take advantage of low interest rates to drive up both industrial and office property values in the Torrance and Long Beach submarkets.

"Leasing is lethargic but sale activity has been robust," said Jim Biondi, senior vice president at Grubb & Ellis Co.

The LAX/Century Boulevard corridor has been the toughest leasing sub-market in Los Angeles since the tech bubble burst. Things actually got worse in the fourth quarter, as the vacancy rate climbed to 29.9 percent--by far, the highest in the city--from 28.2 percent in the third quarter.

El Segundo, with 10.5 million square feet of commercial space, had the second-highest vacancy rate at 24.6 percent, a small improvement from the 25.8 percent in the third quarter, but still higher than 23.7 percent in the fourth quarter of 2002.

Overall, vacancies in the South Bay office market, which stretches from Los Angeles International Airport to downtown Long Beach, rose to 19.7 percent in the fourth quarter from 19.4 percent in the previous three months and 19 percent in the fourth quarter of 2002, according to Grubb & Ellis.

Chris Strickfaden, senior vice president at PM Realty Group, said the LAX and El Segundo office markets remain significantly weak because of overcapacity that allows tenants to drive a hard bargain for low rates.

Both markets have been soft since the Sept. 11, 2001 terrorist attacks devastated the travel industry and related air freight and ticketing companies in the area. Meanwhile, office brokers are still awaiting a much-anticipated rebound in the aerospace industry.

"The positive economic news has not yet impacted here and aerospace hasn't had the growth in employment that everyone had thought," Strickfaden said. "Until companies start hiring people in significant numbers and outgrow their space, the market will continue to lag."

An indication that the leasing market in the South Bay has worsened in the past year is the whopping 670,248 square feet of space that was put back on the market year-to-date. In the fourth quarter alone, this negative net absorption totaled 94,041. On the bright side, the rate of backsliding slowed from 252,858 square feet in the third quarter.

Downtown Long Beach and the suburban Long Beach market, which includes the Long Beach Airport, East Long Beach, Bixby Knolls and the 405/710 Freeway corridors, have seen an uptick in leasing activity, with vacancy rates of 15.8 percent and 10 percent, respectively, in the fourth quarter.

Greg Gill, senior managing director at Charles Dunn Co., said the fourth quarter brought solid leasings in suburban Long Beach and higher prices for small office buildings.

"Small entrepreneurs are out there buying office buildings in the 5,000- to 50,000-square-foot range and it's obviously driven by low interest rates," Gill said.

The biggest deal in the South Bay in the fourth quarter was G REIT Inc.'s purchase of One World Trade Center in downtown Long Beach for $113.6 million.

Meanwhile in Carson, the commercial vacancy rate dipped to just 6.7 percent in the fourth quarter from 8.5 percent in the third quarter and 14.7 percent in the year-ago period. Carson has just 1.2 million square feet of rentable office space, the smallest sub-market in the county.

In the industrial market, the South Bay vacancy rate rose to 4 percent in the fourth quarter versus 3.4 percent in the third quarter and 2.7 percent in the fourth quarter of 2002.

Carson Town Center, the new state-of-the-art industrial park, leased or sold more than 440,000 square feet in the past four months and is now 85 percent leased with one building still not constructed, said Bret Quinlan, an industrial broker at Cushman & Wakefield's South Bay office. "There's strong demand for well-located quality product in the South Bay and that's driven by the location to the ports and LAX," Quinlan said.

Major Events:

* G REIT real estate investment trust bought the 27-story One World Trade Center for $113.6 million, or $199 per square foot. The property is 90 percent leased.

* Jamison Properties Inc. purchased the 350,000-square-foot Herbalife building at 9800 La Cienega Blvd. for $22.3 million, or $63 per square foot. The property is 45 percent vacant.

* McCarthy Cook & Co., the L.A.-based real estate firm, bought a 250,000-square-foot building near Torrance for $19 million.

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