After taking its customary summer breather, the Inland Empire real estate juggernaut has picked up enough steam to finish with another strong year.
Brokers say build-to-suits, particularly in the hot Ontario Airport area, have been fueling the most recent resurgence. Even the Inland Empire’s traditionally flat office market is beginning to pick up.
The only potential fly in the ointment? An actual fly.
The Delhi sand fly, which has habitats in the Colton, Miraloma and Ontario areas, was placed on the endangered species list in 1994. The federal government believes it may cost up to $15 million to preserve its habitat.
Several industrial construction projects already have been delayed, or have proven costlier because construction had to be altered to accommodate the bug.
“The flies may be more important than jobs,” said Paul Earnhart, a partner with Lee & Associates, who said that a 200,000-square-foot build-to-suit project has been delayed because of concerns about trespassing on the Delhi sand fly’s habitat.
Despite such problems, development in the Inland Empire appears to be on the rise.
“It was quiet over the summer, but the past 45 days have really picked up,” said J.R. Wetzel, vice president of Atlanta-based Industrial Developments International, which regularly does business in the Inland Empire. “I predict we’ll have another 12 million to 14 million square feet of net absorption for the year.”
Indeed, preliminary figures for the third quarter indicate that the market may be on the move again.
Third-quarter industrial vacancies crept up to 8.4 percent, compared to 8.3 percent in the previous quarter. Though vacancies continue to grow, it’s a far smaller jump than from the first quarter, when vacancies stood at only 7.7 percent. The third-quarter number is also better than the third quarter of 1996, when the vacancy rate was 9.1 percent.
The relatively sluggish office market also showed signs of life, with vacancies shrinking to 23.4 percent, compared to 24 percent posted for both the first and second quarters. The office vacancy rate was 24.2 percent in the third quarter of 1996.
“The second quarter is always a slow quarter, but things have really started to look very good in recent weeks,” said Mark Kegans, a broker for Grubb & Ellis Co.
Kegans has reason to feel positive: In September he brokered the biggest deal of the quarter, when Grubb & Ellis closed escrow on 36.3 acres of land bounded by Eucalytpus, Yorba and Monte Vista avenues and the 71 freeway in Chino.
Purchased from the Sanwa Trust for an undisclosed price by developer Trammell Crow Co., the land will house seven industrial buildings containing 800,000 square feet, much of it build-to-suit. Two of the buildings totaling 208,475 square feet are already committed, and tenants will begin moving in during the spring.
Wetzel and Industrial Developments International were involved in only one deal during the third quarter, but it was also significant: In August, the company closed escrow on land purchased from Wells Fargo Bank near Ontario Airport. It is now developing a 411,000-square-foot build-to-suit for Timberland, the outdoor shoe and clothing manufacturer and retailer. Timberland will take 308,000 square feet as a distribution center, while International Developments will lease out the remainder.
Also in August, Ontario-based Lee & Associates closed a deal on 100 acres of land at the southwest quadrant of Mission Boulevard and Milliken Avenue in Ontario for Bridgestone Tire. Bridgestone is building a 500,000-square-foot distribution center, slated for opening in the third quarter of 1998.
“Build-to-suit is becoming somewhat of a phenomenon, a big component of the industrial market,” said Earnhart of Lee & Associates. “If the guy has a piece of land, he can be ready to roll, and be more competitive.”
Wetzel agreed. “I think there are a lot of big users in the market, and in some cases they are not finding the exact building they need, which is why build-to-suit is going so well,” he said. “If they give themselves the time you have to be comfortable with about 14 months they can have something built to their specifications. Otherwise, they’re pretty much relegated to a lease.”
While industrial long has been the hot segment in the Inland Empire, there have also been a few successes in the leasing market. On Oct. 9, Lee & Associates completed the purchase of a 240,000-square-foot building at Fourth Street and Cleveland Avenue in Ontario. Built in 1987 and owned by aerospace contractor General Dynamics, it will be converted to class B office space and leased primarily to data processing firms or the data processing arms of large businesses.
And Earnhart’s firm also recently broke ground on a 46,595-square-foot speculative class-A building off the Santa Monica (10) Freeway at Haven Avenue one of the first class-A construction projects in the region since the early 1990s.
“We’re going to be 30 percent ahead of our prior year in the office business,” Earnhart said.
Major Events
Trammell Crow Co. closed escrow in September on 36.3 acres of land in Chino purchased from the Sanwa Trust. Bounded by the 71 Freeway, Eucalyptus, Yorba and Monte Vista avenues, the plot is being developed into seven industrial buildings containing 800,000 square feet of space.
Bridgestone Tire closed escrow in August on 100 acres of land at Milliken Avenue and Mission Boulevard in Ontario. The site is being developed as a 500,000-square-foot distribution center.
Industrial Developments International closed escrow in August on a plot of land at 3950 E. Airport Drive near the Ontario Airport, where the developer plans to build a 411,000-square-foot build-to-suit. Shoe and clothing manufacturer/retailer Timberland will use 308,000 square feet of the building as a distribution center.
