Amid boom in industrial use, office market also taking hold.

THE industrial market in the Inland Empire has long overshadowed the much smaller office market and that's not going to change anytime soon--some 9.9 million square feet of new industrial space was under construction in the second quarter.

Yet the office market also took off in the April-June period.

All told, the Inland Empire office vacancy rate fell to 10 percent from 10.4 percent in the first quarter. In the busy western submarket of Ontario and Rancho Cucamonga, vacancies dipped to 7.3 percent to me second quarter from 8.5 percent in the previous three months.

Regionwide, asking rents for Class A office space nosed upward to $1.84 a square foot from $1.79 in the year-ago second quarter, and net absorption totaled 256,352 square feet, up from 157,368 in the first quarter. Class B asking rates posted a more dramatic increase, to $1.48 per square foot from $1.36 in the year-ago period.

Brokers said a wave of building could not keep up with rising demand. At the end of the second quarter, 1.1 million square feet of office space was under construction, while a total of 2.5 million feet were under development, much of it near Ontario International Airport.

"With so much new product in the pipeline, the western submarkets are now pushing the 5 million square foot mark and are coming on strong," said Natalie Bazarevitsch, vice president with CB Richard Ellis in Ontario.

In the Ontario submarket, 108,652 more square feet of space were newly occupied in the second quarter than was put on the market. In Riverside, the figure was nearly 90,000.

Riverside office deals included San Diego-based Janez Properties buying a 138,500-square-foot office park from developer Magnon Construction. The five-building parcel was 65 percent leased at closing. CT Realty Corp. acquired a 127,533-square-foot office building from Kilroy Realty in Riverside's revitalized downtown zone.

Bazarevitsch said low interest rates and investors new to the region and teaming up on joint ventures boosted sales in the smaller Class B office sector.

Second quarter highlights in the Class B office sector included Utica Office Plaza, an eight-building project in Rancho Cucamonga. The site came online in the second quarter with seven of the eight parcels pre-sold.

The only real threat to a sustained office boom appears to be the cost-of new construction, Bazarevitsch said.

Booming industrial market

The Inland Empire's industrial market showed no signs of cooling down in the second quarter.

Industrial vacancy rates clocked in at 5.6 percent, down from 6.4 percent in the previous three months and 7.9 percent in the second quarter of 2003, while asking rents rose to 39 cents per square foot from 36 cents in the first quarter.

Lease activity more than kept up with the pace of new construction, as net absorption totaled 7 million square feet.

The eastern submarkets, including Moreno Valley, Redlands, Riverside and San Bernardino, saw a robust build-to-suit industrial segment holding sway.

"The large amount of build-to-suit bodes well for vacancies," said Mary L. Sullivan, manager of research and client services for Grubb & Ellis in Ontario.

A number of large national users brought new construction online in the second quarter, helping to push down the vacancy rate, Sullivan said.

Build-to-suit sites that came on-line in the second quarter included Mattel Inc.'s 1.2 million-square-foot distribution center in San Bernardino. The nation's largest drugstore chain, Walgreen Co., opened an 850,000-square-foot distribution facility in the Moreno Valley that will employ 600. Closeout retailer Big Lots Inc. opened a 468,000-square-foot distribution center in Redlands, while El Segundo-based Big 5 Sporting Goods Corp. closed a deal to lease a build-to-suit 900,000-plus square foot distribution center in Sycamore Canyon, adding 300 jobs to eastern Riverside.

Major Events:

* San Diego-based Janez Properties purchased a 138,500-squarefoot office park in Riverside from developer Magnon Construction.

* CT Realty Corp. acquired a 127,533-square-foot office building from Kilroy Realty in Riverside's revitalized downtown zone.

* Utica Office Plaza, an eight-building project in Rancho Cucamonga, came online with seven of the eight parcels pre-sold.

* Outback Storage purchased a multi-tenant industrial park for roughly $2.20 per square foot.

* Big 5 Sporting Goods Corp. closed a deal to lease a build-to-suit 900,000-plus square foot distribution center in eastern Riverside.