Inland Empire's huge and growing hub of warehousing/distribution facilities is mushrooming, spurred on by the area's broad expanses of developable land, relatively affordable rents and robust foreign trade activity through local ports.

In the second quarter alone, 4 million square feet of new space in 41 buildings was added to the market's 168 million-square-foot industrial inventory.

Even with that new supply, the average monthly asking lease rate climbed from 30 cents per square foot in the first quarter to 35 cents in the second, according to Cushman & Wakefield Inc. And the vacancy rate dropped to 5.6 percent, down from 7 percent at the end of the first quarter.

"That's unbelievably low," said Chuck Belden, associate director of Cushman & Wakefield Inc. in Ontario. "I've never seen it so low."

Total second-quarter leasing activity for the five submarkets (Ontario, Rancho Cucamonga, Fontana, Chino and Mira Loma) was about 9 million square feet.

The most significant deals came in Ontario, where Mazda Motor Corp. opened a 211,000-square-foot dealership and eStyle occupied 125,000-square feet of warehouse space. Liquor distributor Young's Market also took on 200,000 square feet.

Further driving the point home about the vivacity of the Ontario market, Home Shopping Network leased 760,000 square feet of warehouse space to complement its 870,000-square-foot building in Fontana. Sundance Spas leased 350,000 square feet in Chino.

Belden notes that development has become more time-consuming and less-profitable lately. Until recently, projects could be launched within four or five months after the developer acquired the site.

But that's far less likely now, due partially to San Bernardino County's requirement that environmental impact reports be prepared prior to construction. In the not-too-distant past, a negative impact declaration sufficed to at least get the development process started.

Developer yields, meanwhile, have grown thinner as the Inland Empire hasn't seen the jump in lease rates that L.A. and Orange counties are enjoying. According to Carol Plowman, a broker with Lee & Associates in Riverside, industrial rental rates are 30 percent lower in the Inland Empire than in those neighboring counties.

Despite such drawbacks, developers are quite active. Belden estimates that Inland Empire construction starts this year will total 14 million square feet, which would be up from about 10 million last year.

"Manufacturing is on the rise, but this area has defined itself as one of the nation's key distribution hubs, Ontario specifically," he said.

Meanwhile, the Inland Empire office market remained flat during the second quarter, with the vacancy figure at 15 percent just as it was in the first quarter, according to Tom Perik, senior vice president at Lee & Associates. One reason for the static performance, Perik said, is that new projects are adding space to the market.

Monthly asking lease rates for class-A and -B space ran between $1.45 and $1.95 per square foot, according to Perik.

Net absorption (the amount of space newly occupied minus the amount newly available) for the first half of 2000 was 297,000 square feet, which Perik says puts the market on pace to break the 1999 record of 566,000 square feet.

Considerable activity occurred in the Ontario office market, where Forecast Development is constructing an 80,000-square-foot project and Pacific Equities broke ground on 60,000-square feet of office space.

Some of that activity has been generated by the recent expansion of Ontario International Airport and the need for office support space.

In Rancho Cucamonga, Legacy Partners is building a 280,000-square-foot office campus known as Rancho Corporate Center. It consists of three, two-story buildings that are being constructed in two stages. The first phase, now underway, contains 220,000 square feet of space.

Meanwhile, Southland Partners began the second phase of its mixed-use Riverside University Village Tower, which will have 60,000 square feet of retail/office space. A third phase with 150,000 square feet of class-A offices is set for groundbreaking in November.

"We stress that what's pushing a lot of new office development is the fact that we're one of the fastest-growing regions in the nation," said Perik, who points out that the Inland Empire's population is projected to jump from 3 million today to 4 million by 2005.

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