Developers Pushing Mixed-Use While Industrial Action Grows
By SIMONE KAPLAN
Contributing Reporter
Despite slight increases in industrial and office vacancy rates, the Inland Empire remained one of the hottest markets in Southern California during the fourth quarter, with increased leasing and sales on the industrial front and a push toward mixed-use development in the retail and office spaces.
Industrial sales and leasing hit a high of 8.5 million square feet in the October-December period, up from 6.4 million in the previous quarter and 6 million in the fourth quarter of 2002.
Annual sales and leasing topped 2002 by more than 2 million square feet, at almost 28 million square feet year to date. Activity was driven mostly by demand for space under 200,000 square feet, as the number of available land parcels over 20 acres or warehouse space of more than 500,000 square feet dwindled, driving an increase in rental and leasing prices.
“Rates will only go up from here,” said Ron Waschle, an industrial broker in the Inland Empire office of Grubb & Ellis Co. “This past year was very healthy and strong. We’re in an in-fill market now, rather than a land market.”
One of the last big deals signed before the quarter’s end was Ferguson Enterprises Inc.’s 15-year lease of 565,000 square feet of warehouse and distribution space in Mira Loma for an undisclosed sum.
Vacancy rates stayed relatively stable, rising slightly to 6.9 percent, up from 6.6 percent in the third quarter but still lower than the 7.4 percent of the fourth quarter one year ago.
Due to the lack of land space, developers shifted their focus to the east, where the closures of the Norton, George and March Air Force bases have created a surplus of military land available for development, Waschle said. He pointed to March Air Reserve Base in Moreno Valley, where during the fourth quarter businesses purchased more than 75 percent of the 4 million square feet allotted for office and manufacturing space to be developed over the next year.
On the office side, vacancy rates remained steady, rising slightly to 9.4 percent from 9.3 percent the previous quarter, but still much lower than 13.1 percent in the fourth quarter of 2002. Asking rent for Class A space rose to $21.50 per square foot from $21.35 in the third quarter, and Class B asking rents rose by 30 cents sequentially to $16.72. The inventory of office space increased by 2 million square feet from 2002, and speculative space under construction grew by 71 percent.
The retail and office markets grew steadily as developers turned their attention to mixed-use developments, popular in the rest of Southern California but new to the Inland Empire.
Currently the trend is centered primarily in Rancho Cucamonga. In late 2003, Forest City Development and Lewis Investment Co. broke ground on Victoria Gardens, a 1.3 million-square-foot mixed-use development, with the first phase scheduled for completion in fall 2004. The development, worth an estimated $180 million, includes 70,000 square feet of office space with a potential build-out of 570,000 square feet, 145 acres of retail space anchored by Macy’s and Robinsons-May, and almost 20 acres of residential apartment space.
The deal, worth an undisclosed amount, is indicative of the direction that development in the Inland Empire will go, said Dale Goldsmith, a partner with law firm Greenberg Glusker Fields Klaman Machtinger & Kinsella LLP.
“Given the shortage of land, the choked freeways and the maturation of the Inland Empire as a more urban area of growth, we’re going to see a lot more mixed-use development,” said Goldsmith. “It makes sense to consolidate office and retail space, particularly when you’re dealing with the increased amount of traffic. With the current budget crisis, more towns are amenable to developments that will generate sales tax and cut the sting of housing costs.”
Forest City and Lewis Investment also began construction on a similar project at the southwest corner of Foothill Boulevard and Haven Avenue in Rancho Cucamonga. Called Town Square. The 1.3 million-square-foot project includes 120,000 square feet of office space and will include both retail and residential components.
Major Events:
– Ferguson Enterprises Inc. signed a 15-year lease for 565,000 square feet of warehouse and distribution space in Mira Loma.
– Forest City Development and Lewis Investment Co. began building Victoria Gardens, a 1.6 million-square-foot mixed-use development in Rancho Cucamonga, worth an estimated $180 million.
– Forest City and Lewis Investment also broke ground on Town Square, a 1.3 million-square-foot mixed-use development, also in Rancho Cucamonga.
– O & S; Holdings began construction on a 315,000-square-foot retail center on Foothill Boulevard in Rancho Cucamonga.
