After growing at a blistering pace over the past few years, the Inland Empire's office and industrial markets finally saw a slowdown last quarter, with increased vacancy rates and dips in sale and lease activity and net absorption.

At the same time, the quarter ended with more than 23.5 million total square feet of under construction and, on the office side, Class A asking rents reached new record highs.

"We're still seeing an expansion of the industrial base in the two-county area. It's related to the activity at the Ports of L.A./Long Beach it's classic consumerism," said Chuck Belden, senior vice president with Cushman & Wakefield. "The more tennis shoes, plasma screens and whatever is made in Asia is coming over here, being warehoused, distributed to stores, put on shelves and sold.

Even so, industrial rental rates fell two cents to 39 cents per square foot during the April-June period, according to Grubb & Ellis Co. The Corona/Norco submarket had the region's highest asking rents, 48 cents, while the Fontana, San Bernardino/Redlands and Colton/Rialto submarkets had the lowest rents of 36 cents. Sale and lease activity dipped overall to 5.6 million from 9 million square feet.

Meanwhile, vacancy rates climbed a point last quarter to 3.8 percent, the highest rate since late 2004, and a rise, Belden said, that is part of the natural cycle of geographically sprawling markets. "It's slightly up, but it's actually down in the Inland Empire west because there's no more land, and up in the east because there is land," he said.

The Rancho Cucamonga submarket was one of the few that saw a spike in sale and lease activity, thanks in part to the completion of Low & Archibald's Spectrum Business Park, a 230,000-square-foot industrial park on 13 acres. All 17 buildings were sold out upon completion for a combined $24 million.

Net absorption was down slightly to 3.9 million from 4.1 million square feet, but varied wildly between submarkets. Ontario absorbed 1 million square feet, more than double its absorption during the prior quarter. The small Montclair/Upland submarket increased its absorption eightfold to nearly 49,000, while Corona/Norco gave back 51,275 square feet.

The Moreno Valley/Perris area, with a 4.9 percent vacancy rate, saw nothing absorbed, most likely because the submarket has so little space available. Soon, however, there will be plenty. The area ended last quarter with 2.4 million square feet under construction. Developers also will break ground next quarter on a 1.7 million-square-foot spec building in Perris, which likely will become the largest spec building under construction in the country, Belden said.


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