South Bay Rental Rates Continue to Climb
- The South Bay market experienced negative absorption totaling 180,500 square feet in the first quarter of 2019, mainly caused by givebacks of space by Raytheon and the Salvation Army.
- Nevertheless, average asking rents for the overall market continued to rise, pushing up to $2.78 per square foot (PSF) full service gross (FSG) from $2.72 last quarter.
- Leasing essentially mirrored last quarter with 515,200 square feet of activity recorded.
- The office property at 1925 E. Maple Avenue in El Segundo delivered 45,200 square feet to the market, leaving 160,900 square feet under construction, all of which is slated to be delivered by the end of 2019.
- Sales activity consisted of three properties trading for a combined total of $56.1 million.
South Bay rental rates exhibited growth for the 21st time in 22 quarters, as Class B inventory (17.1%) drove overall growth (12.1%). Vacancy rose from 15.4% to 16% due to large givebacks of space in the Downtown Long Beach and El Segundo/Beach Cities submarkets. About 160,900 square feet of product remains under construction, though most of that total is scheduled to be sold as condos. Leasing activity remained moderate to start 2019, recording 515,200 square feet.
The outlook for the South Bay market remains positive. Despite this quarter's increase, demand should push vacancy down through the middle of 2019 due to a lessened construction pipeline and strong leasing activity in 2018. Similar to West Los Angeles in the past couple of years, the South Bay has managed to defy rental rate expectations, routinely posting year-over-year growth in the 6-8% range. The attractiveness of the market, both in terms of office inventory and quality of life, should continue leading to rising rates.