Growth of market drives office, industrial vacancy rates down.

The Inland Empire remained one of the hottest markets in Southern California during the third quarter, with robust leasing and sales on the industrial side and record-low office vacancy rates.

For the western portions of Riverside and San Bernardino counties, industrial sales and leasing activity was at a healthy 6.4 million square feet in the July-September period, driven mostly by deals for warehouse space.

While that's down from the record 8.8 million square feet in the second quarter, it just about equals the 6.5 million square feet for the third quarter of 2002. For the year, sales and leasing activity has topped 21.8 million square feet, compared with 19.3 million square feet in 2002.

"We're running ahead of last year and last year was a good year," said Ron Washle, an industrial broker in the Inland Empire office of Grubb & Ellis Co.

Enough industrial space got leased in the third quarter to drive down the vacancy rate to 6.6 percent from 7.9 percent in the second quarter and 8.2 percent in the third quarter of 2002. While double the 3 percent average for L.A. County, it was enough to keep lease rates steady at 36 cents per square foot.

One of the biggest announcements of the quarter was Mattel Inc.'s planned 1.2 million-square-foot warehouse in Redlands, a deal worth an estimated $30 million.

In another major deal, Levitz Furniture Co. signed a five-year lease of 886,000 square feet from Industrial Developments International for a warehouse in Mira Lorna, for an estimated $8.5 million.

Rival Wickes Furniture Inc. signed a five-year lease on a 572,000-square-foot built-to-suit warehouse at the corner of Hermosa Avenue and Sixth Street in Rancho Cucamonga. The deal is estimated to be worth slightly more than $10 million.

Resistance building

Washle said he expected the pace of deals to pick up during the fourth quarter and continue strong into next year. However, there could be a hitch.

Over the last couple of years, opposition to warehouse developments in the Inland Empire has been picking up steam. Residents have become increasingly concerned about diesel trucks going to and from the warehouses.

Earlier this year, the Center for Community Action and Environmental Justice persuaded the Mira Loma City Council to put nearly half the city off limits to further warehouse development. The group is now targeting other Inland Empire cities for similar concessions.

"These warehouses are serviced by diesel trucks that have given this area one of the highest levels of particulate pollution in the country," said Penny Newman, the center's executive director. "We need to rethink the direction we're going in with all this economic development."

On the office side, Inland Empire vacancy rates hit a record low of 9.3 percent in the third quarter, down from 10.4 percent in the previous three months and 11.9 percent in the third quarter of 2002.

"This is the first time in the 20 years I've been in this market that it's dipped below 10 percent," said John Ewart, an Office broker in the Inland Empire office of Grubb & Ellis. "There's been some recent building, but not enough to keep up with demand."

Lease rates for Class-A space held steady in the third quarter at $1.78 per square foot, from $1.69 for the like period a year earlier. Rents are still 70 cents below the average L.A. County rate, but the gap is closing.

Ewart said the Ontario region is doing especially well, fueled by the 1999 expansion of Ontario Airport and of UPS and Federal Express services in the area.

One of the bigger office leases of the quarter took place in Rancho Cueamonga, where First American Title Insurance Co. leased 41,000 square feet of space for 12 years in the Fairway Business Centre. The deal is worth an estimated $8.3 million.

Also in Rancho Cucamonga, Mercury Insurance Group announced it was building a 100,000-square-foot office building and call center.

Major Events:

* Mattel Inc. said it will build a 1.2 million-square-foot warehouse in Redlands, valued at $30 million.

* Wickes Furniture Inc. signed a five-year lease for a 572,000-squarefoot warehouse in Rancho Cucamonga, in an about $10 million deal.

* Levitz Furniture Co. signed an $8.5 million lease for an 886,000-squarefoot warehouse in Mira Loma.

* Consolidated Garments Inc. signed an eight-year lease for a warehouse from USAA Real Estate Co. in Ontario for an estimated $6.9 million.

* First American Title Insurance Co. leased 41,000 square feet for 12 years in the Fairway Business Centre in an estimated $8.3 million deal.

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