South Bay Market Hits 9-Year High in Demand

 

The South Bay market saw a minimal increase in rental rates, while vacancy made a modest drop from 19.3% to 18.3%. Construction completions were flat this quarter due to delivery delays, but those properties will come online by year-end. Leasing activity dropped from last quarter to 589,200 SF but still exceeded the previous 4 quarter average pf 584,900 SF. Investment dollar volume dropped, but the market remained active as investors continue to comb the area for value-add opportunities.

 

The South Bay continues to be a desired destination for tenants seeking alternatives to the higher-priced submarkets to the north, as well as companies that have grown organically within the market. El Segundo has long been the destination of choice in the market, but other submarkets, such as Central Torrance and LAX/Los Angeles/Westchester, are being noticed by tenants and investors alike.

Key Takeaways:

  • The El Segundo/Beach Cities submarket once again led the South Bay market, recording market high numbers in overall asking rent, absorption and leasing activity.

  • Average asking rents for the overall market saw a minimal increase, reaching $2.31 per square foot (PSF) Full Service Gross (FSG) from just $2.30 PSF FSG.

  • Class A properties saw the majority of the quarter’s absorption gains, posting 238,300 square feet (SF) of positive demand among classes.

  • There were no new construction deliveries this quarter, but the South Bay market still has 308,300 SF of inventory under construction, with much of it due to deliver by the end of the year.

  • Several properties traded hands in second quarter, highlighted by PM Realty Group acquiring the Torrance Technology Campus for $67M ($117 PSF) from Deutsche Asset and Wealth Management.

Outlook:

The outlook for the South Bay market remains positive. Vacancy should continue to decrease through the end of 2016 with increased demand from companies both moving south from West Los Angeles and growing organically from within the market. Steady, but flattening, rental growth throughout 2015 will continue along the same arc in 2016. In addition to core investment properties, value-add and creative conversion projects will remain part of the investment environment as sellers divest completed projects and buyers seek opportunities to enter the market.