After ending last year with a record-low 2.8 percent vacancy rate, the San Gabriel Valley's industrial market cooled off in the first quarter.

The vacancy rate climbed more than a point to 4.0 percent, but remains lower than the level recorded for the year-earlier period, according to Grubb & Ellis Co.

More importantly, a decade ago the last time the Valley faced the prospect of a national recession the industrial rate was about twice as high.

"Everyone looks ahead and sees potential slowing. In fact, demand stayed pretty brisk," said Phil Lombardo, a senior vice president and principal at Trammell Crow Co. "We couldn't be in a better situation entering into a recession."

Since the recession of the early 1990s, the San Gabriel Valley's industrial base has diversified and expanded to include everything from distribution to assembly to computer manufacturing, creating broad demand for industrial space.

And much of the demand is coming from small to medium-sized entrepreneurial companies, many of which have strong ties to China or Taiwan. These businesses add strength to the market, observers said, because they are somewhat less subject to the instinctual Wall Street and corporate reaction to cut, cut, cut.

While the 2.3 million square feet of space sold or leased in the first quarter was well off the 3.9 million square feet of the prior quarter, it was barely down from the 2.4 million feet taken in the same period last year.

And with Majestic Realty Co.'s 450-acre City of Industry project not scheduled to even begin coming on line until 2002, asking rents held steady at 42 cents per square foot per month.

"We have a window here where, even if demand slacks off, we are not seeing a lot of supply coming on line," said Jim Center, senior vice president at Grubb & Ellis.

Only 1.5 million square feet of new industrial space is now under construction in the San Gabriel Valley, with the lion's share being at Trammell Crow Co.'s Irwindale Business Center, which is being built on the site of an exhausted mining pit.

The company has 12 buildings completed there, with another 1.4 million square feet under construction, 800,000 square feet of which has already leased or sold, Lombardo said.

In a major deal at the center, Brand Emporium Management leased nearly 100,000 square feet of space for eight years at 44 cents per square foot per month.

But the largest industrial deal of the quarter was elsewhere. United Stationers Supply Co. expanded into nearly 215,000 square feet at the Grand Avenue Distribution Center in Industry. The lease runs for 60 months at 38 cents per square foot per month.

Emser Tile is also moving into a freestanding building in Industry, on North Baldwin Park Boulevard, taking about 111,000 square feet for 60 months at 38 cents per square foot per month, gross.

The San Gabriel Valley office market, with more than 9 million square feet of rentable space, is tiny compared with the 155 million-square-foot industrial market. Its vacancy rate dipped in the first quarter to 13.5 percent, down from the previous quarter's 15.7 percent.

It's much improved from the 20.3 percent vacancy rate posted a year ago, as users continue to absorb what little space is being constructed in the San Gabriel Valley, a mature market with few large tracts of undeveloped land outside of Industry.

Indeed, the market's largest office project is the San Gabriel Valley Corporate Center, a re-use project being developed by Trammel Crow at the site of the former headquarters of Home Savings of America.

Of the nearly 700,000 square feet of rentable space there, more than a third is leased, with another 200,000 square feet of proposals pending or with leases out for signature, said Ron Heim, a senior vice president and principal at Trammel Crow.

GC Services, a financial services company, leased 26,500 square feet at the corporate center in the first quarter. The space is being rented at $1.93 per square foot per month in a nine-year deal.

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