South Bay: Westside migration, organic growth boosts office market.

The South Bay office market maintained its strength during the second quarter as tenants continued to migrate from the Westside in search of lower rents, and as organic growth began to pick up in the area.

While vacancy rates rose to t3.2 percent from 12.8 percent, according to Grubb & Ellis, brokers said the increase was only a hiccup that didn't reflect the core health of the market.

One year ago, vacancies were at 16 percent.

"We are still moving in the right direction," said Bob Alperin, senior director at Cushman & Wakefield. "There are a lot of transactions that will find a home here in the coming quarter. Then we'll see the rates go down further, especially in El Segundo and Long Beach."

The county of Los Angeles and companies such as Northrop Gmmman, UPS, BP and AT&T, are currently in the market for office space in the South Bay. Space in El Segundo is in especially high demand, in part because of its proximity to Marina del Rey.

The cost of class A office space in E1 Segundo rose to $2.47 per square foot, up from $2.36 the first quarter and from $2.18 the year before. Still, prices are much lower than in the West Los Angeles market where rents rose to $3.96 per square foot this quarter.

"South Bay rents are seeing moderate growth compared to the West Side, but it's a nice bump in rates for the current land lords," said Steve Solomon, managing director at Jones Lang LaSalle.

Industries in the area are diversifying. Financial institutions and Internet-related companies have played a significant role in buying up space in the area, he said.

Now, as rates continue to rise, construction is expected to pick up in the South Bay.

"There are some bigger projects looking for premier tenants to break ground," Alperin said. Rates haven't risen to the level where the market will accept a lot of large spec projects, but when you have a 10 percent or less vacancy, it is going to happen. In the next six to 12 months, we will see the underpinnings of a market ready for construction."

MAIN EVENTS

* Carmichael International Service, a Glendale-based customs broker and freight forwarder, took 110,000 square feet of industrial space at 1639 W. Rosecrans Ave. in Gardena for two years. The landlord, L.A.-based Pacific Prime Properties, leased the property at 47 cents per square foot.

* UMA Enterprises Inc, a Compton-based importer and wholesaler for the home decor industry, leased 255 W. Manville St. in Compton from ProLogis for 51 cents per square foot. The 108,387-square foot industrial lease closed on June 15, 2007.

* AMSI Real Estate LLC sold 18607 S. Main Street, a 129,500 square foot Gardena building, to AMB Property Corp. for $11.6 million.

* Advertising agency Ignited Minds moved to a 55,000 square foot space at 2221 Park Place in El Segundo from its former offices in Marina del Rey.

* Connecta leased 75,000 square feet at 2100 Park Place in El Segundo from Continental Development Corp. The 15-year lease was valued at $30 million. City National Bank relocated from one building in Continental's project to 30,000 square feet in 2100 Park Place.

* Aztec Tents signed a 10-year lease for 60,500 square feet at 2665 Columbia St. in Torrance for $4.4 million, or 60 cents per square foot. The property was previously occupied by Pentech. It will now serve as the worldwide headquarters for Aztec.

Industrial Market At a Glance

Inventory: 221 million square feet

Under Construction: 476,762 square feet

Asking Rents: 63 cents