South Bay market posts office peaks and valleys.

Space remains tight along the beach, airport area suffers

The South Bay office market remained a study in contrasts during the fourth quarter, with some submarkets absorbing huge amounts of space and showing healthy vacancy rates while others suffered from negative absorption and high vacancy rates.

Steve Cramer, a vice president at The Seeley Co., said the vacancy rate is only 8 percent, for example, in the El Segundo/Beach Cities submarket. But the Los Angeles International Airport/Century Boulevard submarket, which traditionally has one of the highest percentages of empty space in the South Bay, ended the year with a vacancy rate of 38 percent.

Cramer said Seeley's year-end survey showed a fourth-quarter vacancy rate of 20 percent for Torrance Central, 21 percent for the 190th Street corridor, 24 percent for downtown Long Beach and 17 percent for the Long Beach airport area.

Cramer said vacancies are likely to remain high in the LAX/Century Boulevard area, where much unleased space has been on the market for years.

"Last year was the third year in a row of negative absorption in that (LAX) submarket," Cramer pointed out. "There have been newer buildings put up in the market, and a lot of tenants have moved from Century Boulevard south to take advantage of newer quality, 'Class A' buildings."

Seeley's survey also showed a wide disparity in the absorption of space in the South Bay submarkets.

Fourth-quarter absorption ranged from a high of 94,384 square feet in the 190th corridor to a negative absorption of 79,772 square feet in the LAX/Century Boulevard submarket.

For the year, the El Segundo/Beach Cities submarket showed the highest absorption, 262,350 square feet, and the LAX submarket again turned in the most dismal results, a negative absorption of 246,800 square feet.

Despite the low vacancy rate, Cramer said El Segundo/Beach Cities landlords "are still motivated and you can still get a very aggressive, attractive transaction."

Cramer said the Torrance Central market also had a very good year in 1991, with net absorption of 242,000 square feet, compared with only 5,800 square feet in 1990.

During 1990, he explained, many buildings came into the market that were formerly occupied by Epson America, which moved into a new facility. At the same time, Hughes Aircraft put some new buildings on the market, skewing the absorption downward.

Seeley's survey showed another strong market was the 190th Street corridor, which finished the year with 227,114 square feet of absorption, compared with only 28,326 in 1990.

Downtown Long Beach has slowed down, however, Cramer reported. He said the 24 percent vacancy rate represents 1 million square feet of space, and the market showed a negative absorption of 58,681 for the year.

Paul Brunsell, co-manager of the Lee & Associates Torrance office, said a bright spot in downtown Long Beach, however, is that many of the new tenants are coming from other markets.

This is a good sign, he said, because leasing activity in many markets is often primarily just tenants moving from space to space within the market.

Cramer said the main factor driving the Long Beach airport submarket during the year was the space vacated by McDonnell Douglas. Even though the market finished the year with a moderate 17 percent vacancy rate, it showed negative absorption of more than 32,000 square feet.

Brunsell said the continual pullback of the aerospace industry has been especially significant in the Long Beach market, where McDonnell Douglas vacated about 200,000 square feet during 1991.

Overall, Brunsell said, the South Bay was "a real mixed bag" of good and not-so-good markets during 1991.

"The South Bay is a young office market. Most of the space was built since 1980, and historically the aerospace industry was the primary occupier of space. With (the aerospace) pullback we're seeing other types of companies come in, so it's developing into a more diverse tenant base," he added.

Cramer said the mixture of good and not-so-good submarkets produced an overall absorption of 394,000 square feet for the year, compared with 330,000 for the year before, and a vacancy rate that was unchanged at 19 percent.

"For all intents and purposes, 1991 was a static year, even though there were three bright spots," Cramer said.

One trend he spotted during the year was that landlords in many cases are offering lower rents over the term of a lease rather than free rent at the beginning.

"Several owners today are just giving a flat effective rate. They're getting their cash up front and not taking a gamble" by offering a year's free rent to tenants who might vacate the space after the year is up, he noted.

Bob Todd, owner of Manhattan Beach-based Re/Max Beach Cities Realty, the largest-grossing South Bay brokerage, said the South Bay, despite its reputation for million-dollar homes on the beach, actually has many homes in the $150,000 range in inland areas.

The area is mainly a resale market, he said, but he added that there are "small condominium projects" of 10 to 14 units throughout the South Bay.

Todd said preliminary figures indicate the average sales price dropped only 1 percent in 1991 for the eight boards of realtors that cover the South Bay market.

The sale price dipped to approximately $332,000 from the previous year's $335,000, Todd said. He said 6,675 homes were sold during the year, an increase of 500 from the year before. Meanwhile, the sales volume rose to more than $2.2 billion from 1990's slightly more than $2 billion.

Todd said the average sales price at his company dropped to $310,000 in 1991, compared with $385,000 in 1990, but he said the drop was expected because the company in 1991 directed much of its efforts toward selling to first-time buyers.

In addition, he said, home prices declined, bringing his company's overall sales volume down to $662 million from the previous year's $680 million.

Despite the relatively good year that both Todd and the South Bay market posted in a sluggish economy, he said the housing market nonetheless got tougher for real estate agents in 1991.

Part-time agents and small realty shops continued to go out of business during the year, contributing to an existing trend that is driving many marginal agents out of the industry.

"There are going to be fewer and fewer agents," he said. "Those that are left are going to do more and more transactions. The reason is it's going to take more and more of a specialist to survive" because of more stringent laws, tougher competition and other factors affecting agents.

"It's no longer a part-time business for housewives and retired guys," he said. "I worked my first 10 years in this business as a part-timer, but there were not the laws and regulations we have today."

Todd said 1992 will likely see more winnowing of the ranks of agents because of new laws passed in the past few years; these require a time-consuming study of regulations regarding tax disclosures, foreign ownership disclosures and numerous other requirements that make the agent's job much more complicated than it ever was before, he said.