The industrial market in the San Gabriel Valley stayed hot in the second quarter, with the strong economy and a variety of new tenants pushing the vacancy rate from 4.3 percent in the first quarter to a minuscule 3.9 percent in the second.

Meanwhile, the monthly asking lease rate for industrial sites jumped from 46 cents per square foot to 52 cents over that same period.

And market conditions could be even better if the area had larger sites available to attract more major tenants, according to John M. Minervini, a director at Cushman & Wakefield Inc.

"The huge action for distribution is in the Inland Empire," Minervini said. "The really big distribution deals in Ontario are 28 to 31 cents per square foot, vs. 35 or 38 cents per square foot in the San Gabriel Valley."

Still, a healthy economy throughout Southern California, driven by tech and Internet firms, has helped produce the tight market conditions in the San Gabriel Valley, Minervini said, with available sites going fast.

"They haven't broken ground yet on a (planned) 65,000-square-foot project in Azusa, but we leased one building there already and we've had offers on the other two," he said.

In one of the largest transactions of the quarter, T.A. Associates Realty and Wohl Property Group purchased the former Hughes Markets Distribution Center in Irwindale and renamed it the Los Angeles Regional Distribution Center. The purchase price was about $25 million. The unoccupied property includes a 475,000-square-foot warehouse and a 163,000-square-foot facility equipped to handle perishable foods.

The market's construction activity suggests that developers are confident the strong demand for industrial space will continue during the third quarter, particularly in the western San Gabriel Valley.

Among the major projects underway, Trammell Crow Co. broke ground during the second quarter on the first phase of its Irwindale Business Center. The development is designed to contain 1.2 million square feet of space, and buildings will range in size from 40,000 square feet to 325,000 square feet.

As the industrial market in the area stayed hot, the San Gabriel Valley office market remained essentially static during the second quarter, with the overall vacancy rate dipping slightly to 20.2 percent, down from 20.3 percent in the first quarter. Brokers attributed the stubbornly high vacancy rate to a number of small, empty suburban office buildings in Covina, West Covina, and elsewhere along the Foothill (210) Freeway corridor.

With about 1.8 million square feet of the San Gabriel Valley's 9 million-square-foot total inventory of office space sitting empty at the end of the quarter, the monthly asking rent for class-A space stayed flat at $1.86 per square foot, unchanged from the first three months of the year.

Some industry observers characterized the static performance as somewhat encouraging given the fact that the vacancy rate had jumped more than 3 percent in the first quarter.

In one of the most significant deals of the most recent quarter, USC inked a $16.5 million lease for 85,000 square feet in the Ratkovich Co.'s 1 million-square-foot project known as The Alhambra, a 45-acre, mixed-use development in the city of the same name.

The development currently houses and in buildings around a large, central courtyard. Its owner believes the site reflects a regional trend away from traditional high-rise towers and toward the campus-style properties that appeal to high-tech firms.

"The Alhambra sits at the gateway between Los Angeles and the San Gabriel Valley," company President Wayne Ratkovich said. "The development combines a lushly landscaped campus-style environment with a complete array of workplace essentials such as redundant fiber, power, and advanced telecommunications capabilities."

USC plans to establish a federally funded institute at the site to conduct studies on the effects of smoking. During the first quarter, the Ratkovich Co. signed the County of Los Angeles to a $50 million, 10-year lease for more than 210,000 square feet.

In other activity, Xerox Corp. signed a build-to-suit lease in Monrovia for 136,000 square feet with Monrovia developer Boone Fetter LLC.

Strong demand for office space also continued during the second quarter in the eastern San Gabriel Valley. The 360,000-square-foot Gateway Corporate Center in Diamond Bar, the region's newest office project, attracted several new tenants, including Administaff, a temporary services firm that pre-leased 45,000 square feet.

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