Industrial Activity Slows as New Space Comes On Line

By DAVID GREENBERG

Staff Reporter

Inland Empire brokers are still not uttering the R-word, but their territory finally began to feel the effects of the recession during the fourth quarter as industrial sales and leasing activity fell while a slew of new projects went on the market.

While 2.3 million square feet of additional space came on line, brokers managed to seal deals for only 8.6 million square feet of space in the fourth quarter, down from 12.8 million square feet the previous quarter, according to Grubb & Ellis Co.

The vacancy rate for industrial properties jumped to 7.4 percent from 6.6 percent during the same period. But brokers were not alarmed by the increase, noting that the current rate is still lower than the 7.8 percent mark posted during the fourth quarter 2000.

Their biggest concern has become the shortage of available industrial-zoned land to develop, with 600 acres of prime Mira Loma land tied up in environmental litigation.

“That is a very miniscule increase in the vacancy rate,” said Ron Washle, senior vice president of industrial properties for Grubb & Ellis. “All that tells you is that there were some buildings that got completed at one time during the (quarter).”

While the real estate industry might not be in a full-blown recession, landlords settled for a cent less than their 30-38 cents per square foot asking price to close deals. Before Sept. 11, they were getting their list price.

Roughly 50 percent of the 8.1 million square feet of industrial space currently under construction is expected to be complete by the end of the first quarter.

Among the big deals in the fourth quarter:

Georgia-Pacific Corp., the paper products giant, signed a 5-year, $9 million lease in November for 420,000 square feet of warehouse space in the Majestic Spectrum South business park, a building owned by Majestic Realty Co. at 14725 Monte Vista Ave. in Chino.

Danone Waters of North America, which bottles and sells spring water, signed a 5-year agreement in November for an undisclosed sum to lease 347,820 square feet of warehouse space in Centrepointe at 14326 Monte Vista Ave. in Chino. Trammel Crow Co. arranged the deal for Danone.

Opting against existing space, Kohl’s Department Stores Inc. in December purchased 60 acres of land on the former Norton Air Force Base at Mill Avenue and Lena Street in San Bernardino for an undisclosed sum. The retail chain has begun construction on a 650,000-square-foot distribution center that could cost $25 million to $30 million, according to Cushman & Wakefield of California Inc., which brokered the deal for Kohl’s and Hillwood Investment Inc., the Dallas-based land owner.

Selection of that site underscores the trend by developers to build out on the fringes of the Inland Empire as the amount of space for large warehouses in the central part of the region becomes short. Buildings totaling 300,000 to 1 million square feet would require 60- to 100-acre parcels.

Developers are anxiously awaiting the results of environmental impact reports by Riverside County and environmental groups pertaining to approximately 600 acres of prime industrial Mira Loma land now in limbo.

Brokers said approximately 13 million square feet of space could be constructed in the area if permits are approved.

However, residents are concerned that a convoy of diesel trucks coming in and out of warehouses would further pollute the air while environmentalists want to protect the Delhi Sands Flower-Loving Fly, which was placed on the federal endangered list in 1993.

In the office sector, which plays less of a role locally, vacancies jumped to 14.8 percent in the fourth quarter, from 14 percent in the previous quarter.

One of the few major deals was brokered by Center Trust Inc., which represented Kaiser Foundation Health Plan Inc. in its 5-year lease for 17,034 square feet at 11911 Central Ave. in Chino.

Major Events:

-Sport Chalet Inc. signed a 10-year, $11.6 million agreement to lease 326,543 square feet of warehouse space at 2250 Sequoia Ave. in Ontario.

-Georgia-Pacific Corp. signed a 5-year, $9 million lease for 420,000 square feet of warehouse space at 14725 Monte Vista Ave. in Chino.

-Calico Brands Inc. signed a 10-year, $9 million lease on a 228,423-square-foot building at 2055 South Haven Ave. in Ontario.

-Kohl’s Department Stores Inc. purchased 60 acres of land on the former Norton Air Force Base at Mill Avenue and Lena Street in San Bernardino.