Developers Building Ever-Bigger Industrial Projects.

DEVELOPERS stepped up their "build it and they will come" activity in the fourth quarter, breaking ground on a number of ever-larger industrial projects.

Some 13 million square feet of industrial space is currently under construction in the Inland Empire, most of it big-box distribution space, according to Trammell Crow Co.

Demand is coming from tenants that either can't find or can't afford facilities in central Los Angeles locales.

"If you have to be in Southern California and there's a 2 to 3 percent vacancy rate and very little land in the South Bay, Commerce and Industry but there's available land in Inland Empire, that helps generate tenant demand," said Henry Johnson, a senior vice president at Trammell Crow.

And increasingly, tenants are demanding larger buildings.

In the early '80s, the average size of new Inland Empire industrial buildings was 100,000 square feet, but today, multiple projects are being built in the 500,000-plus range, according to Grubb & Ellis Co. research director Tina Arambulo in her year-end report.

Catellus Development Corp. announced in late November that it plans to build a 500,000-square-foot distribution center in Ontario for New Balance Athletic Shoes Inc. The building, which would be one of the largest in Southern California, is scheduled for completion within a year at Crossroads Business Park.

Such large-scale projects further cement the Inland Empire's growing reputation as "one of the nation's premiere distribution centers," Arambulo wrote.

The area's industrial development activity is not confined to big-box projects, either. The Inland Empire also has seen a 30 percent increase in the number of smaller projects (25,000 square feet or less) being constructed, according to Arambulo.

"This growth in the supply of space has led to slightly higher direct vacancy rates, but in general, demand for such spaces, particularly by locally based manufacturing firms, is keeping pace," Arambulo wrote.

More specifically, total industrial leasing and sales activity reached 4.6 million square feet during the fourth quarter, down from 6.6 million square feet in the previous three months but up from 3.2 million square feet in the fourth quarter of 1998, according to Cushman & Wakefield Inc.

Industrial leasing and sales activity for all of 1999 totaled 23.4 million square feet, up from 14.8 million square feet in 1998, Cushman and Wakefield reported.

Johnson of Trammell Crow expects the flow of tenants moving eastward to the Inland Empire to continue, as large blocks of space and developable land in Los Angeles County become increasingly scarce and prices continue to rise.

A record 22-cent gap now exists between the average per-square-foot monthly asking rent for large industrial spaces in the South Bay and the Inland Empire (50 cents vs. 28 cents). "This is a very enticing situation," Johnson said.

Despite strong tenant demand due to the steady stream of new buildings coming onto the market, the industrial vacancy rate actually was 9.5 percent in the fourth quarter, up from 8.9 percent in the July-September period but down from 10.1 percent at year-end 1998, according to Cushman & Wakefield,

The overall vacancy levels may not come down for awhile, with so many projects underway. During the fourth quarter, grading was begun on Centre Point South in Chino, a 900,000-square-foot project with five buildings. Also in the fourth quarter, the city of Rancho Cucamonga approved RCDC III, a 1.1 million-square-foot industrial project in four buildings.

The Inland Empire's office market, meanwhile, turned a corner this year as vacancy rates declined, space was steadily absorbed, and developers stepped up their spec construction activity.

Construction began in the fourth quarter on Vista Business Park, a 50,000-square-foot spec building, in Temecula. It is scheduled for completion late this year. The decision to build class-A spec space on the edge of the Inland Empire market shows confidence in the strength of the rebound, Grubb & Ellis reported.

Placed in escrow during the fourth quarter was a 40-acre property fronting Interstate 10, near Ontario International Airport. Wattson-Brevast is planning an office/hotel development on the site, formerly used for manufacturing, Johnson said.

On the retail front, the Inland Empire made something of a comeback in 1999, fueled by strong residential permit activity and healthy housing starts. New retail projects included a regional mall in Temecula, new higher-end retail stores in Palm Desert, expansions by three outlying discount malls and the addition of major tenants to the sprawling Ontario Mills mall.

Inland Empire

Major Events:

* Catellus Development Corp. announced plans to build a 500,000-square-foot distribution center for New Balance Athletic Shoes Inc. at Crossroads Business Park in Ontario.

* Grading began on Centre Point South in Chino, a 900,000-square-foot project with five buildings.

* The city of Rancho Cucamonga approved RCDC III, a 1.1 million-square-foot industrial project in four buildings.

* Construction began on Vista Business Park, a 50,000-square-foot spec building, in Temecula.

* Wattson-Brevast agreed to buy a 40-acre property fronting Interstate 10, near Ontario International Airport, where it plans to build an office/hotel project.