Tech Firms Drive Up Rents, Push Down Vacancy Rates.

THE South Bay's office market is finally starting to feel some heat as high-tech companies arrive from higher-priced areas of town, most notably the Westside, and warehouse/distribution companies vie for industrial space to service local seaports.

As a result, the area's office and industrial vacancy rates dipped and average asking lease rates rose.

In the office sector, the vacancy rate fell to 13.5 percent in the fourth quarter from 15.0 percent in the previous three months, according to Cushman & Wakefield Inc. The average asking monthly lease rate rose a nickel a square foot, to $1.69 from $1.64 in the July-September period.

Demand has been particularly strong from high-tech and communications tenants, which together accounted for about 400,000 square feet of office space absorption in 1999, according to Jim Jandro, associate director at Cushman & Wakefield.

"In the whole area, there's been a high demand from high-tech users," he said. "They're looking for low-rise, campus-type places, like the space that Hughes subleased at 1500 Hughes Way."

That sublease involved Hughes Space and Communications taking over 145,000 square feet of space in El Segundo. Hughes also signed a 10-year lease in El Segundo in the fourth quarter, for 81,000 square feet in the brand-new Continental Grand Plaza II office building. Hughes plans to use that space for engineering and general office purposes.

Demand is not limited to traditional office projects. Office tenants are, also demanding industrial-style spaces, such as those favored by creative tenants on the Westside. And developers are responding to that demand.

For example, Rubin Pachulski Dew Properties bought a 50,000-square-foot industrial building at 2221 Park Place in El Segundo for $5 million during the fourth quarter, and is looking to lease the building to media, high-tech and entertainment tenants.

Among the more-significant office deals in the quarter, Complex Legal Services Inc. leased nearly 48,000 square feet of office-flex-tech space in the Torrance Industrial Park, in an expansion and relocation of its corporate headquarters from El Segundo.

In Long Beach, the major office deals included investor Joseph Danehgar's acquisition of the International City Bank Building for $11 million. The 109,316-square-foot office building is located at 249 E. Ocean Blvd., and was 83 percent leased as of December.

In the industrial sector, the South Bay also demonstrated strength in the fourth quarter, with the vacancy rate dipping to 2.3 percent from the third quarter's 2.8 percent, according to Cushman & Wakefield. Demand is primarily coming from warehouse/distribution companies and high-tech firms migrating to less-expensive space.

While still cheaper than some areas of town, the South Bay's average monthly industrial lease rate jumped to 60 cents per square foot in the fourth quarter, up from a third-quarter rate of 53 cents. But buildings in certain areas of the South Bay still have asking rents of less than 50 cents a foot.

The rising rents are prompting a wave of industrial development. Among the projects currently under construction are the Harbor Gateway Commerce Center and Harbor Gateway, both of which are in Torrance.

Of the total 238,016 square feet of industrial space currently under construction in the South Bay, 189,096 square feet has been preleased to Hitachi Transport and 79,000 square feet was preleased to Nissan Transport. Nissan previously owned the Gateway Towers West building, but sold it to the Carlyle Group in the third quarter for $53 million.

El Segundo has been another hot spot.

Three major new projects were completed in El Segundo during 1999, and all three have been drawing healthy interest from tenants, although they each still are more than 30 percent vacant. Continental Grand Plaza II has 236,000 square feet available, Kilroy Airport Center building center has 139,865 square feet available, and the new Raleigh Studios Phase II complex has 60,000 square feet available.

South Bay

Major Events:

* RREEF Funds acquired the Sequoia Commerce Center in Torrance for about $16 million.

* Citizen Watch Co. preleased 129,259 square feet of build-to-suit warehouse space in Torrance.

* Investor Joseph Danehgar bought the International City Bank Building in downtown Long Beach for $11 million.

* Hughes Space and Communications signed a 10-year lease for 81,000 square feet at the brand-new Continental Grand Plaza II office building in El Segundo.