In the Inland Empire, it’s been a case of the best of times and worst of times for the third-quarter real estate market.
While the area’s industrial market continues to set record leasing and construction records, the office market is at a standstill with some developers pulling back on approved projects.
The area’s strength has been its industrial market, which has been thriving thanks to the area’s large supply of relatively cheap land, making the area a top pick for retail distribution centers.
New space on the market caused the industrial vacancy rate to increase slightly to 6.8 percent in the third quarter, up from 5.6 percent in the second quarter, according to Cushman & Wakefield Inc. More than 9 million square feet of new space has been completed this year in the Inland Empire, roughly 4 million in the third quarter alone, and another 14.9 million is under construction, according to Cushman & Wakefield.
“It’s just been an incredible year,” said Scott Evans, associate director of Cushman & Wakefield’s Ontario office. “Whereas we’ve always been a big-box market, that continues and the boxes keep getting bigger and bigger.”
In the first three quarters of 2000, some 23 million square feet of industrial space was leased in the Inland Empire, beating the leasing record set in 1999 when 20 million square feet of space was leased. While the area is nowhere close to running out of land, it is becoming more difficult for developers to find big pieces of available land in key areas, such as near Ontario International Airport, Evans said.
“The reality is, if you want 10 acres for your company by the airport, well, three years ago I could show you 15 sites. Today, I could find maybe one or two,” he said.
That has not yet had an effect on lease rates, which averaged 34 cents a square foot, monthly, for warehouse space in the third quarter, dropping a penny from the second quarter.
One of the bigger deals in the third quarter involved International Paper Co. moving into a 645,000-square-foot building developed by Majestic Realty Co. in Ontario. Wal-Mart Stores Inc. leased an additional 1.1 million square feet of warehouse space in two separate buildings in Mira Loma, bringing its total distribution space in the area to more than 3 million square feet. In Ontario, Tyco Electronics moved into 200,000 square feet of warehouse space and The Children’s Store leased a 268,000-square-foot building.
On the office-leasing front, conditions have been quite the opposite.
“It’s been fairly slow,” said Carol Plowman, principal at Lee & Associates in Ontario.
Lee & Associates had not yet released third-quarter figures for the office market. The vacancy rate hovered around 15 percent for the first and second quarter of the year and Plowman said she expects about the same for the third quarter.
About 126,000 square feet of new office space was delivered into the Inland Empire market in the third quarter. Lord Baltimore Properties finished a 75,000-square-foot building in Ontario for Specialty Foods, which relocated from a 50,000-square-foot space in Riverside.
In the Rancho Cucamonga/Ontario submarket, close to 1 million square feet of office space is in the planning process, with roughly 315,000 square feet under construction or nearly finished, Plowman said.
Fewer office tenants are looking to move east to the Inland Empire and those that are, want space built for them. Class-A space and space built on speculation is suffering the most. Plowman said that, while the monthly asking rental rate has stayed steady at around $1.75 per square foot for the last year, building owners are being more flexible in price negotiations.
Brokers are cautioning developers to slow down and wait until next year to see if the office market returns.
And some developers are listening.
Legacy Partners Commercial Inc. received approval in the third quarter for the 360,000-square-foot Rancho Corporate Center that it plans to develop in Rancho Cucamonga. That project is on hold, Plowman said.
Meanwhile, Silagi Development bought six acres of land known as Centre Lake to build two 54,000-square-foot buildings. The project was set to break ground in the fourth quarter, but has not gotten all of the approvals and is expected to be delayed until the first quarter of 2001.
Developer Richard Dick is building two 45,000-square-foot buildings in Rancho Cucamonga, adjacent to the Metrolink station there. Dick is expected to sign his first tenant to 10,000 square feet of space in the fourth quarter, when construction is expected to be completed.
The Airport Corporate Center in Ontario is under construction and set to be completed in mid-November. The 80,000-square-foot building is 90 percent leased. Forecast Development is continuing construction on 75,000 square feet of office space in Ontario Center that is expected to be finished in May 2001.
