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Inland

The booming market for big box industrial space in Southern California keeps drawing developers to the Inland Empire, where speculative warehouses of hundreds of thousands of square feet are being built and in many cases leased before construction is completed.

Available land and continuing demand are driving the market, according to Alan Sharp, vice president of construction for the Irvine office of Atlanta-based Industrial Developments International, which has several million square feet of industrial space either built, under construction or planned in the Inland Empire.

Sharp said IDI, which entered the Southern California market for the first time only two years ago, has moved into the Inland Empire in a big way because it sees immense potential for more of the huge warehouses that now occupy much of the industrial land around Ontario International Airport and in other nearby communities.

Most recently IDI bought 75 acres west of Interstate Route 15 and south of Riverside Drive in Mira Loma, a community adjacent and to the east of Ontario along the Pomona (60) Freeway where the company plans to build nearly 2 million square feet of industrial space.

IDI is in escrow for an additional 30 acres adjacent to the 75 acres, said Sharp, who said the new industrial space will be part of a project called Park Mira Loma West.

Sharp said the project will include speculative industrial buildings of 550,000 and 400,000 square feet as well as 1 million square feet in speculative buildings of 200,000 square feet and larger.

Travis Brown, director of marketing services at the Ontario office of Lee & Associates, said IDI is one of a host of developers that have built more than 12 million square feet of new industrial space in the Inland Empire since 1995, most of it in the area around Ontario known as Inland Empire West. Another 4 million square feet is now under construction, and plans for new projects are announced frequently.

At 192 million square feet, the Inland Empire industrial market is now larger than any Los Angeles County industrial submarket except the 265 million-square-foot downtown and central Los Angeles market, according to Grubb & Ellis Commercial Real Estate Services. Orange County, by comparison, has about 225 million square feet of industrial space.

Brown said 112 million of the Inland Empire’s 192 million square feet is in the Inland Empire West, where the vacancy rate has declined to 5.3 percent at the end of the second quarter from 11.5 percent when the building boom began in early 1994.

However, Brown added that the vacancy rate has actually risen by about 1 percent in the past six months and that the figure could rise by another 2 percent if the projects now under construction around the Ontario International Airport are not leased soon after they are finished.

If space goes unleased, it could drive down rental rates, which have been rising gradually for the past two years, he said.

Despite these caveats, Brown said Lee & Associates is forecasting with “guarded optimism” that the new space will continue to be absorbed and that rental rates will hold.

Brown pointed out that with large amounts of new space about to come onto the market at any given time, many brokers in the area now discuss the “availability rate” rather than the vacancy rate to indicate a more accurate measure of how much space is actually available for lease.

The vacancy rate only counts space that is already completed and is actually physically vacant, Brown said, but at any given time there is also additional space that is available for lease because it is part of a nearly finished construction project or because the existing tenant has given notice and plans to move out.

Sharp, the IDI vice president, says continued demand is why his company has invested so heavily in speculative construction.

Besides the planned construction on its newly acquired land, Sharp said that in its two and a half years here IDI built and leased more than 1.4 million square feet of space that includes:

– A 445,000 square foot building in California Commerce Center near Ontario International Airport that is occupied by a contract distributor for Kraft Foods Inc.

– A 525,000-square-foot speculative building in Mira Loma where 350,000 square feet is leased and the remainder is vacant.

– A 252,000-square-foot speculative industrial building in Ontario’s California Commerce Center that was completed in June and is vacant.

– A 212,500-square-foot, build-to-suit in Mira Loma that is occupied by General Marble Co.

IDI also owns a 20-acre site in California Commerce Center where it plans to build 416,000 square feet of space that will include a 100,000-square-foot speculative project as well as a 310,000-square-foot build-to-suit project for which IDI recently signed a tenant, Sharp said.

Sharp and Brown both said that land is becoming less available and more expensive near the Ontario International Airport one reason that IDI bought land in Mira Loma, where land costs are lower.

“There is a perception that the Inland Empire has lots of land. Maybe it does. But the available pieces of dirt substantial enough to build an 80,000-square-foot industrial building are becoming slim pickings” near the airport, Brown said.

While the hectic pace of building is keeping brokers hopping, they point out that all of the emphasis on huge warehouses has all but overshadowed the market for smaller spaces.

Mark Piscitelli, senior vice president at the Ontario office of Grubb & Ellis, said the shortage of developers building smaller industrial projects means few choices for tenants looking for high-quality space in the range of 50,000 square feet and smaller.

“Any tenant who needs a space between 10,000 and 50,000 square feet probably has a problem,” Piscitelli said.

Major events in the Inland Empire

– San Francisco-based Meridian Industrial Trust, a publicly held real estate investment trust, bought a 200,000-square-foot warehouse at 353 Meyer Circle in Corona from Laguna Niguel-based Birtcher Simms Associates for $8 million.

– Trucking company and warehouse operator Tony’s Express signed a $3.4 million lease for 181,000 square feet at a former Frito-Lay warehouse at 10613 Jasmine St. in Fontana.

– Industrial Developments International bought 75 acres of land west of Interstate Route 15 and south of Riverside Drive in Mira Loma where the company plans to build more than 550,000 square feet of speculative industrial space.

– Caliber Logistics, an Ohio-based third-party warehousing company, leased and moved into 237,000 square feet of Hunsaker Development’s 409,802-square-foot building at 1235 E. Quarry St. in the Corona Freeway Center in Corona.

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