Build-Up of Demand Gives Boost to Industrial Activity

Inland Empire

By DAVID GREENBERG

Staff Reporter

Demand that has been building in the Inland Empire for industrial space boosted second-quarter sales and leasing activity to the highest level since Sept. 11.

The vacancy rate fell slightly to 7.6 percent from 7.7 percent in the first quarter as brokers closed deals for 11.1 million square feet of space, up from 6.1 million square feet, according to Grubb & Ellis Co. In the third quarter of 2001, 12.8 million square feet of space was sold or leased.

“It was pent-up demand for decisions that were postponed at the end of last year,” said Roger Rhoades, a Grubb & Ellis senior vice president for the industrial sector. “We had some surprisingly good successes in the past month. But I have to caution you that it’s not safe to say we’ll continue to have the same rates in the next three months as we did in May and June.”

He said that jitters in the corporate world and on Wall Street are causing some companies to rethink expansion plans.

Compared to the large amount of speculative development coming on line before Sept. 11, there was an increase in build-to-suit projects over the past three months.

Of the speculative developments currently being done, most are in the 200,000 to 400,000-square-foot range with the so-called “big box” developments of 800,000 to 1 million square feet more of a rarity than in the past several years when such projects were common in the area.

And developers are watching each other more closely in an effort to time their developments, one after another, so that new construction does not come on line until the previously completed projects by competitors are leased out.

“Developers are very smart to watch the market and watch the economy,” said Brett Tremaine, a senior vice president in the industrial sector for Lee & Associates Inc. “They make very statistically correct decisions so not all five of them build a building at the same time.”

Since the mid-1990s, the Inland Empire has maintained its status as a warehouse and distribution hub by offering the lowest rates in the region. That continued in the second quarter.

Last quarter, tenants paid only 29 cents to 32 cents per square foot, a slight drop from the 31 cents to 33 cents during the previous period.

Low rates

In an economy still struggling to improve, Inland Empire rates were attractive to many budget-conscious tenants who shied away from rates of 43 cents per square foot in downtown L.A. and the South Bay not to mention 50 to 60 cents in Orange County.

“In the Inland Empire, we are the catcher’s mitt of large distribution requirements because of our low rental rates,” said Rhoades.

Buyers paid $3.50 to $4.30 per square foot also a far cry from the $8.50 to $14 in downtown L.A. and the South Bay and $12 to $18 in Orange County.

Unilever, one of the largest makers of packaged consumer goods, participated in the area’s largest transaction when it signed a 10-year agreement in June for close to the $42.2 million asking price on 1.1 million square feet of yet-to-be-completed space in Rialto.

All other long-term deals were for less than 500,000 square feet, including Magnussen Presidential Furniture’s $20 million lease of 400,580 square feet of space over 13 years in the Sycamore Canyon Business Park at 2335 Cottonwood Ave. in Riverside. ConAgra Foods Inc. signed a $14.2 million, 10-year deal for 423,260 square feet of space in the Pier 1 Imports Distribution Center at 9160 Buffalo Ave. in Rancho Cucamonga.

“If you’ve completed your business plan for the year and you’re rolling into the new year, it typically takes at least three to four months to have a new deal finalized, which would be reflected in the second quarter,” said Mary Sullivan, a Grubb & Ellis client service manager.

Vacancy rates in the less prominent office market dropped to 13.1 percent in the second quarter from 13.8 percent in the previous quarter, based on an increase in net absorption to 228,021 square feet from 131,702 square feet during the same period.

Inland Empire

Major Events:

– Unilever signed a 10-year agreement for close to the $42.2 million asking price on 1.1 million square feet of yet-to-be-completed built-to-suit space on Rialto Ave. in Rialto.

– Maytag Corp. signed a $7.2 million five-year lease for 455,455 square feet in the Mira Loma Space Center at 11015 Hopkins St. in Mira Loma.

– USF Logistics Inc. signed a 3-year agreement for 432,308 square feet of space for close to the $4.8 million asking price in the Baxter Building at 5431 East Philadelphia St. in Ontario.