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Post-Attack Pullback Slows Activity, Increases Vacancies

Post-Attack Pullback Slows Activity, Increases Vacancies


Staff Reporter

Although the Inland Empire remains the West Coast’s industrial hub, a significant reduction in sales and leasing activity pushed the sector’s vacancy rate to its highest level in more than two years.

Available space climbed to 7.9 percent in the first quarter, from 7 percent in the fourth quarter of 2001, as brokers secured deals on only 3.9 million square feet of space, down from 7 million square feet in the previous quarter, according to Grubb & Ellis Co.

“All those transactions that closed in the fourth quarter were in the negotiations stage and/or being completed prior to the Sept. 11 attacks,” said Mark Piscitelli, Grubb & Ellis’ general partner. “Then, everybody pulled back and took a wait-and-see attitude because nobody knew what was going to happen.”

Vacancies hit their highest mark since the region posted an 8.6 percent rate in the fourth quarter of 1999, while sales and leasing had its biggest lull since the first quarter 1998, when brokers secured deals for only 3.7 million square feet of space.

Unlike recent quarters, however, brokers can’t blame the hike on new construction coming on line. Fewer than 1 million square feet in 19 buildings came online in the quarter, compared with 2.3 million square feet, or 33 buildings, in the fourth quarter of 2001.

Beating L.A.

Despite lagging activity, leasing rates have remained stable over the past year, at 31 to 33 cents per square foot for spaces larger than 100,000 square feet and 33 to 36 cents for smaller facilities.

With its close proximity to Interstate 10 (which runs from L.A. to Phoenix) and Interstate 15 (San Diego to Las Vegas), the Inland Empire is considered an alternative to L.A., where leasing rates on new buildings are 45-50 cents per square feet.

“I don’t think this is a trend based on the level of interest in the market,” said Mary Sullivan, Grubb & Ellis’ research director. “The phones are ringing. Deals are in the works. There are still (prospective) tenants in the market.”

Among the handful of large deals that did get completed was Bentley Forbes Group’s purchase of a 412,580-square-foot warehouse and distribution building at 42375 Remington Ave. in Temecula for $30 million.

Increasingly, activity is being seen on the fringes of the Inland Empire as space becomes scarce for 300,000 to 1 million square foot projects, which require 60 to 100 acres.

“Certain areas are starting to see more activity because the west side of Riverside County is running out of industrial land,” said Larry Null, senior vice president of Lee & Associates-Riverside Inc., which represented lessor Ridge Properties in the deal with American Products. “And Corona is a spillover from Orange County, which has almost zero industrial land.”

The status of one piece of prime development land, on 600 acres in Mira Loma, remains up in the air. Environmentalists continue to hit developers with a slew of litigation in hopes of halting the potential construction of 13 million square feet they say will cause increased pollution and noise from truck traffic.

“The Mira Loma situation getting worked out is important to the market,” said Kevin McCarthy, Majestic Realty Co.’s vice president and director of development for the industrial sector. “The uncertainty is what drives development away from an area.”

Although 7.9 million square feet of space is under construction, brokers are not concerned about another onslaught of unneeded space coming on line. “Keep in mind that at least 60 percent is build-to-suit or owner built,” said Sullivan. “So it comes on line occupied. It will help the future vacancy rates.”

With little new space on the market in the low-impact office sector, the vacancy rate dropped to 13.8 percent from 14.6 percent in the fourth quarter 2001, despite a leasing decline to 124,000 square feet as compared to 146,114 square feet in the previous quarter.

One of the few major deals saw Kaiser Permanente sign a 20-year lease in March on a 17,000-square foot building at 10025 Sierra Ave. in Fontana for an undisclosed sum.

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