Industrial tenants continue to line up for buildings in the San Gabriel Valley, driving down the area’s vacancy rate to the lowest level in years and triggering new development.

The San Gabriel Valley’s industrial vacancy rate of 5 percent in the third quarter was the lowest of the five major markets in Los Angeles County, according to Grubb & Ellis Co. The countywide industrial vacancy rate was 6.6 percent.

The market in the San Gabriel Valley has tightened up from the second quarter, when 6 percent of the area’s 154.9 million square feet of industrial space was vacant, according to Grubb & Ellis. A year ago, the vacancy rate was 6 percent.

“This market is probably as tight as it’s been since the early 1980s,” said Jim Center, a Grubb & Ellis senior vice president. “There’s very little supply and very little construction because there’s not a lot of land.”

Developers and brokers have long lamented the dearth of prime building sites in the San Gabriel Valley sites that are large enough and do not require expensive infrastructural improvements.

But where there’s money, there’s a way. And right now, it’s a seller’s market.

As a result, developers have started building or will begin construction in the next year on at least eight speculative industrial projects in the City of Industry and Irwindale, said Tom Taylor, vice president of The Seeley Co.’s San Gabriel Valley/Inland Empire offices. In all, the projects will add 1.87 million square feet of industrial space to the San Gabriel Valley market, a modest but significant amount, Taylor said.

“A development cycle has begun,” he said. “I think the key in the San Gabriel Valley is finding the sites to develop. The need will be there and (future development) will depend on how those two factors interact.”

Rowland Industrial Investments of Orange County has started construction on four industrial buildings totaling 330,000 square feet in the City of Industry. The O’Donnel Group of Newport Beach also has a project underway in the City of Industry, a 254,000-square-foot building.

The largest of the eight projects includes two rail-served industrial buildings totaling 602,000 square feet in the City of Industry. Prudential Real Estate Advisors of Century City plans to start construction early next year, Taylor said.

Just how extensive the development spurt will be is a matter of speculation.

Center, the Grubb & Ellis senior vice president, expects to see a number of new projects within the next year.

“There’s an acceleration of developers coming into the valley,” Center said. “Six months from now, in the first quarter of next year, the trend will be obvious to a lot of people.”

Frank Geraci, a senior vice president with CB Commercial Real Estate Group Inc., expects development in starts and stops.

“You won’t see large chunks of dollars,” said Geraci. “There aren’t large chunks of land.”

Meanwhile, product-starved brokers scramble to find the rare owner who wants to sell or has space to lease to meet the needs of would-be buyers and tenants.

Their clients include Los Angeles and Commerce-based firms seeking lower rents. Asian high-technology and importing firms, among others, also are major contenders in the area’s real estate market. Some of those firms, which moved into the San Gabriel Valley years ago, are now in need of larger quarters, brokers said.

“We have such a huge demand for product out here that any properties that come available get multiple offers,” said Anthony Brent, a senior vice president with the San Gabriel Valley office of Lee & Associates in the City of Industry.

Brent handled the largest transaction of the quarter, the sale and lease of a 406,000-square-foot building in Industry.

TA Associates, a pension-fund advisor based in Newport Beach, bought the building from California Hardware in a sale valued at about $14 million, said Brent. Escrow closed this month. California Hardware moved to Ontario.

TA Associates already has leased 310,000 square feet of the building, including 37,000 square feet of office space, to apparel distributor Kellwood International of Los Angeles in a 10-year deal valued at more than $14 million, Brent said.

Kellwood plans to build an additional 60,000 to 70,000 square feet of office space on the 26-acre property, which is at the San Gabriel Freeway (605) and Temple Avenue.

Brent and other real estate officials said more prospective tenants are seeking newer, “state-of-the art” buildings that contain more office space ideal for consolidating operations. There is a cost savings as well because lease rates for industrial properties are cheaper than rates for space in office buildings.

Despite an increase in lease rates and property values about 10 percent over the past year, according to brokers lease and sales activity has remained steady, with 2.1 million square feet of industrial space sold or leased in the third quarter of this year compared to 2.2 million square in the third quarter of 1996, according to Grubb & Ellis.

Major Events

– TA Associates, a pension-fund advisor based in Newport Beach, closed escrow this month on a 406,000-square-foot building from California Hardware in a sale valued at about $14 million. TA Associates has leased 310,000 square feet of the building to apparel distributor Kellwood International of Los Angeles in a 10-year deal valued at more than $14 million. The 26-acre property is at the San Gabriel Freeway (605) and Temple Avenue in the City of Industry.

– Rowland Industrial Investments of Orange County broke ground on four industrial buildings totaling 330,000 square feet in the City of Industry. The building, which is scheduled to be completed in March, will carry an asking price of about $15 million. It is located on Rowland Street between Lawson Street and Hatcher Avenue.

– The O’Donnel Group of Newport Beach started construction on a 254,000-square-foot building in the City of Industry. The lease rate for the building, which is located at 200 W. Puente Ave., is 36 cents triple net.

– Prudential Real Estate Advisors of Century City plans to break ground next year on two rail-served industrial buildings totaling 602,000 square feet on Grand Avenue in the City of Industry. The lease rate will be about 35 cents triple net.