The Inland Empire continued its heated growth last quarter and showed no signs of slowing down as construction increased to meet demand.


Industrial rents rose five cents to 43 cents last quarter as the region added another 6 million square feet to its base, now at 317.5 million square feet, according to Grubb & Ellis Co. The area also increased construction by 3.6 million square feet and currently has 22.7 million square feet set to come online when new development is completed.


The market's vacancy rate remained about the same in the third and fourth quarters, 2.8 percent and 2.7 percent respectively, but was down from 4.4 percent during the fourth quarter of 2004.


Companies dependent on the ports of L.A. and Long Beach have helped drive the Inland Empire's industrial market because of the area's large-sized warehouse space, according to Tom Taylor, senior vice president with Colliers Seeley International.


While sales and leasing activity fell slightly overall during the October-December period, the Chino submarket more than doubled its sales and leasing activity to 1.1 million square feet. Chino also has more than one million square feet under construction.


Chino's tremendous housing growth has helped spur development of all kinds. Developers have been buying land from area dairy farmers who then move their farms to the Central Valley or out of state, freeing up even more space in the area, Taylor said.


"Chino is quite central to Orange County, San Gabriel Valley, L.A., and the Inland Empire," said Taylor. "The advantages for the big guys are that it has great logistics and is less expensive than the balance of L.A. and Orange County."


Last quarter, liquor distributor Youngs Market Co. signed a 10-year lease to take more than 447,000 square feet of warehouse and distribution space in Chino for about $19.7 million. Other industrial highlights included Corona Crossroads' sale of its 289,000-square-foot project in Corona for $20.3 million to The Realty Associates Fund III LP.


The Moreno Valley/Perris submarket has not had any of its 6.3 million square feet of industrial space available during the past two quarters, but 1.2 million square feet currently under construction will become available.


"There's going to be a tremendous amount built down there," said Taylor. "There's a general lack of availability in the other markets and the struggle is to find sites for big buildings, 500,000-square-foot plus."


The Inland Empire's booming office market grew rapidly last year with falling vacancies, rising rents, and additional new development. The fourth quarter ended with nearly 1.9 million square feet of office space under construction, an increase of about 20 percent from the prior quarter.


"I think the consistency of demand for office product and the willingness of the cities to have that product built and to get people off the freeways and working in the communities has helped," said Vindar Batoosingh, first vice president at CB Richard Ellis.


Net absorption climbed almost 40,000 square feet to more than 460,600 last quarter, while total net absorption for the year jumped to 1.9 million square feet for 2005 compared to 741,000 square feet in 2004. Class A and B office rents remained about the same last quarter, at $1.97 and $1.69 per square foot respectively, but compared to the end of 2004, Class A rents have risen by 7 percent and Class B by 10 percent.


Office vacancy rates fell half a point last quarter to 7 percent. According to Batoosingh, much of the area's vacancy rate is made up of pockets of smaller spaces with many firms in need of large-scale office space waiting for construction to finish.


"A lot of what's under construction are 20,000-square-foot buildings," he said. "However there are a lot of bigger ones planned."


The Riverside submarket now leads the submarket with 854,200 square feet under construction, followed by San Bernardino with about 313,900 square feet. Though San Bernardino also has the region's highest vacancy rate at 9.5 percent, that number has steadily decreased over the past year, from 14.1 percent at the end of 2004.

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