The bad news in the San Gabriel Valley was that the office vacancy rate jumped more than 3 percent during the first quarter.

But that doesn't mean leasing activity wasn't brisk; in fact, net absorption (the amount of space leased minus the amount vacated) jumped five-fold from the first quarter of 1999. The vacancy rate increased because completion of the first major developments in several years added lots of new space to the market.

Two major leases were primarily responsible for the strong absorption. Ortel Corp., a telecommunications company being acquired by Lucent Technology, leased 185,000 square feet in the San Gabriel Valley Corporate Center in Irwindale, the former headquarters of Home Savings & Loan.

Meanwhile, L.A. County signed a $50 million, 10-year lease for more than 210,000 square feet of class-A space at The Alhambra, a 45-acre campus acquired last year by Ratkovich Co. in the city of Alhambra.

The county Department of Heath Services will occupy more than 140,000 square feet, while the Sheriff's Department takes over 41,000 square feet and the Public Works Department leases 30,000.

The operations are consolidating from Monterey Park and downtown Los Angeles, and 700 employees will move in August when renovations are complete.

The Alhambra project is also said to be close to signing several other leases involving more than 100,000 square feet to bio-science and telecommunications firms.

Overall, the office vacancy rate in the San Gabriel Valley jumped from 17 percent in the fourth quarter of 1999 to 20.3 percent in the first quarter of this year, according to figures from Grubb & Ellis Co.

Meanwhile, net absorption jumped from 48,433 square feet in the first quarter of 1999 to 247,849 in the most recent quarter. Asking rents jumped from $1.65 to $1.86 per square foot over that same period.

"The pent-up demand hasn't been satisfied," said Jim Center, senior vice president at Grubb & Ellis. He said that as the economy continues to improve, so does demand for San Gabriel Valley office space from within and outside the region.

Center believes that demand is being driven by the diversified local economy, which has a strong manufacturing and distribution base, complemented by a growing number of Asian-owned import-export businesses.

The newest office space in the valley came in the form of six new buildings totaling 360,000 square feet in Gateway Corporate Center in Diamond Bar. Four were built by Opus Development and two others by Trammell Crow Co., according to Ron Heim, senior vice president at Trammell Crow. Of that, about 200,000 square feet was pre-leased.

Meanwhile, the San Gabriel Valley industrial market became even tighter as the vacancy rate dropped from nearly 6 percent in the final quarter of 1999 to 4 percent in the first quarter of this year. A total of 2.79 million square feet was absorbed in the first quarter an increase of 70,000 square feet over the final quarter of 1999, according to Grubb & Ellis.

Average lease rates remained steady, with industrial space going for an average of 46 cents per square foot, and research and development space averaging 61 cents per square foot.

"The demand side is phenomenal," said Center. "Some newer construction has been completed, and there are increased transactions from a year ago. There has also been a lot of pre-leasing in the build-to-suit market, and demand is outstripping supply."

That trend should last through the current quarter, when Wohl Development is expected to complete construction of 500,000 square feet in two new buildings in the City of Industry.

Significant leasing of warehouse space during the first quarter included 114,114 square feet to HomeGrocer.com in Irwindale; 116,000 square feet to R & S; Distribution in Pomona; 256,999 square feet to L.A. Carr in Industry; and 200,000 square feet to DSL Services Co. in Industry.

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