South Bay Is Preparing for Hughes Exit

Still struggling to fill up huge amounts of empty space, South Bay landlords and real estate brokers are now preparing for the fallout from the proposed sale of Hughes Electronics’ defense operations, one of the area’s largest users of commercial space.

Hughes and its subsidiaries own and lease about 5 million square feet of office, research and manufacturing space in Los Angeles, according to real estate brokers. Those properties include its 550,000-square-foot headquarters in Westchester and 1.7 million square feet of space in El Segundo, where many of its research facilities are located.

What will happen to all that space is still uncertain now that General Motors, Hughes’ corporate parent, has agreed to sell the company’s defense operations to Raytheon Corp. in a $9.5-billion deal. Raytheon executives said the merger would result in some layoffs and cost savings but did not release any details about which operations might be affected.

Given the large presence Hughes has in the sprawling South Bay area, any major cutbacks “would definitely have an impact” on the real estate market, according to one broker familiar with Hughes’ property holdings.

The sell-off of Hughes’ defense business was announced only one day after Northrop Grumman Corp. of Los Angeles said it would close its defense electronics plant in Hawthorne as part of continued cost-cutting. The company will keep its other Hawthorne plants in operation.

The South Bay real estate market has been slowly emerging from the dramatic contraction in the defense business, which has forced aerospace companies to vacate and close facilities throughout the area. Hughes alone has vacated about 5.2 million square feet of space throughout Southern California--primarily in the South Bay--since 1992, according to company executives.

At the end of last year, 8% of the South Bay’s industrial space and 22.7% of its office space stood vacant, according to a survey by the real estate firm Grubb & Ellis. South Bay vacancy rates remain among the highest in the region, according to the survey.

Still, many area brokers say the growth of companies outside of the aerospace business has helped fill space and will absorb any new vacancies that might be created by the Hughes sale. In fact, brokers note that even aerospace companies, such as Hughes, have added space in recent years as their defense businesses stabilize and their commercial operations expand.

“It’s coming back slowly,” Grubb & Ellis real estate agent Jim Biondi said. “We are seeing very positive signs.”