South Bay Continues Momentum To Start 2017

The South Bay market saw rental rates rebound with positive growth for the thirteenth time in fourteen quarters. Vacancy made a modest drop from 17.4% to 16.8%. There were no construction deliveries, but 4 projects totaling 173,900 SF are expected to deliver in 2017. Leasing activity slid from last quarter to 517,400 SF. Available sublease space almost doubled due to large blocks of space in El Segundo/Beach Cities and 190th Corridor.

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. Future demand, high-quality traditional and creative space, and rental rates that have seen steady, but not meteoric, increases will continue to attract a variety of media, technology and consumer product tenants.

Key Takeaways:

  • Although leasing velocity dropped from 2016, demand from that period kept the South Bay market tight, recording 206,800 SF of positive absorption.

  • Average asking rents for the overall market rebounded from last quarter’s slide, climbing to $2.34 per square foot (PSF) Full Service Gross (FSG) from $2.30 PSF FSG.

  • Class B properties in both size classifications saw the only decreases in vacancy for the quarter, registering drops of 140 basis points (25,000 SF+) and 60 basis points (10,000-24,999 SF).

  • No new properties delivered this quarter. The South Bay market still has 173,900 SF of inventory under construction, due to deliver throughout 2017.

  • Sales activity in first quarter was highlighted by an entity for pharmaceutical company NantWorks acquiring 2300 E. Imperial Hwy. in El Segundo for $52 million ($344 PSF) from V.C.I. Corporation.

Outlook:

The outlook for the South Bay market remains positive. Vacancy should continue to decrease through 2017 due to strong leasing activity in the past year and the beginning of this year. Steady rental growth throughout 2016 will continue along the same arc in 2017, but rates might see some fluctuations as higher priced space comes off the market. 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.