Aerospace market could boost commercial real estate in SoCal
EL SEGUNDO, Calif. — The space boom has arrived on Earth.
That’s what real estate companies think as giants like Northrop Grumman, Virgin Galactic and Relativity Space have expanded their local footprints. As the demand for satellites increases, so does the need for warehouses to build them.
“There’s this massive rush for space,” said Jason Fine, chief executive of commercial real estate firm JLL.
Aerospace companies favor flexible spaces or low-rise office buildings that can accommodate a combination of warehouses and offices. Fine said available occupancy is around 5.3% in the El Segundo area. That means it’s competitive as companies look to Southern California for space, a traditional stronghold for defense and rocket launch companies.
Coastal towns like El Segundo and Long Beach, both of which have long histories in the industry, have economic development staff and city councils familiar with the zoning needs of these businesses.
Buildings can even be zoned before companies even inquire about availability, accelerating the rate at which they can be rented out.
“We’ve seen a lot of these new companies fill up these warehouses left by the old guard,” Fine said.
This includes the former C-17 factory in Long Beach, which once produced the Boeing cargo plane. This space has since been taken over by Relativity Space, one of several recent entrants to space launch.
As California companies grapple with rising rental prices — commercial real estate has, in some cases, doubled — public schools produce an annual crop of job-ready engineers. Rental prices for residential housing have also skyrocketed, aerospace companies may just see it as a cost to their business.
Competing states like Texas have managed to wrest some jobs from California, including some additions to SpaceX, which have been built in the rival state instead.
But it still has advantages.
Southern California is just minutes from Vandenburg Space Force Base. The state has ports that can offer simple rocket motor transport, but other parts of the state are considering taking some of the high-paying jobs El Segundo already has and wants more. County, city and local authorities on the Central Coast hope to build large swaths of space on Vandenburg.
Whether or not those ambitions materialize, counties outside of Southern California understand the value of attracting new developments from companies like Northrop Grumman and the big jobs they can bring.
According to a recent report by JLL, 57% of NASA contracts in 2020 went to 10 companies, nine of which have a presence in Los Angeles.
Fine expects the market to remain hot as companies like SpaceX continue to launch small satellites on a regular basis. This program, Starlink, launches new satellites from Cape Canaveral, Florida almost every month.
Space Force leaders have regularly announced their interest in faster launch capabilities, which has led to continued investment in rocket companies.
During the Great Recession, industry growth slowed. In 2017, it saw another drop when companies like Honda moved. However, since then, the need for office space over the past four years has steadily increased.
“In aerospace, the market is hot. The El Segundo real estate market is hot, but it’s not white-hot. I would say it’s one of the hottest markets in LA,” Fine said.