Inland Empire industrial boom continues to spur construction.

Inland Empire - This sprawling two-county region has maintained its position as king of Southern California speculative industrial construction.

The 3.7 million square feet of industrial space under construction in the Inland Empire of San Bernardino and Riverside counties at the end of the second quarter includes more than 1.4 million square feet of speculative space, according to Grubb & Ellis Co.

City of Industry-based Majestic Realty Co. broke ground during the quarter on the largest of the speculative projects, three buildings totaling 860,000 square feet at the Majestic Spectrum Business Park in Chino.

Kevin McCarthy, an industrial broker with Majestic, said the project includes two buildings of 350,000 square feet each and one of 160,000 square feet.

The second-quarter construction continued an industrial building boom that produced 4.8 million square feet of new industrial space last year and promises more in the third quarter.

Barry Fast, an asset manager at the Anaheim office of General American Life Insurance, said the company plans to break ground in the third quarter on two speculative buildings, one of 238,000 square feet and the other of 37,000 square feet, at the intersection of the San Bernardino (10) and Ontario (15) freeways in Ontario.

Despite the flurry of construction activity and strong market demand, which has reduced the Inland Empire industrial vacancy rate to 8.5 percent from its peak of 21 percent in 1991, developers appeared to be holding back a bit on new speculative projects, said Grubb & Ellis broker Doug Jorritsma.

"We're in what I would call a pending market," Jorritsma said. "I think some of the speculative builders are getting cautious. They're still very interested in the market, but they're waiting for some deals to close on existing space before they begin their projects."

Uncertainty over rents

One reason for builders' hesitance, according to Jorritsma, is that some older industrial spaces were vacated during the first quarter and then were leased at lower rates than the new space commands.

Jorritsma said developers want to make sure that rents on existing buildings hold firm before breaking ground on new projects.

He said typical monthly industrial rates were about 31 cents per square foot at the end of 1995, but some older spaces leased for as little as 26 cents in the first quarter.

Rates then climbed back to about 29 cents in the second quarter, he said.

Jorritsma said the second-quarter recovery in lease rates and recent sales of industrial buildings both suggest the industrial market is strong and growing.

"A few weeks ago we sold a building for $32.50 a square foot that would have sold for $20 a square foot two years ago," he said.

According to Boyd Plowman, president of the Ontario office of Lee & Associates, the buyers of Inland Empire industrial buildings include fairly equal proportions of users and investors. Among the second quarter sales he cited:

* Mead Realty Group sold a 116,645-square-foot industrial building at 1445-1455 Riverview Drive in San Bernardino to a private investor for $3 million.

* Intech Ventures of California sold a 118,615-square-foot building at 10955 Arrow Highway in Rancho Cucamonga to investor Paul Amir of Beverly Hills for $2.6 million.

* Pacific Industrial Partners sold a 62,390-square-foot building at 4601 Guasti Road in Ontario to Rancho Cucamonga-based Concord Foods for $2 million.

Plowman said that, while demand has been greatest for "big box" warehouse space of 100,000 square feet and larger, space is tight in all size ranges because there has been little or no construction of smaller buildings in recent years.

"All of our size ranges have recovered from some pretty high vacancy rates just a few years ago," he said.

Apartment strength

Another segment of the Inland Empire commercial market that has recovered recently is apartment buildings, according to broker John Kalmikov of Sperry Van Ness' Ontario office.

Kalmikov said the second-quarter deal that best reflects the recovery is the sale of the 178-unit Canyon Crest Views complex by William Wright Associates Ltd., a Walnut Creek-based pension plan advisory firm, for $12.8 million to Evans Withycombe Residential Inc., a Phoenix-based real estate investment trust.

The price of $71,900 per unit was "by far the highest price per unit in the Inland Empire for the past six years," Kalmikov said. He asserted that the sale indicates higher-quality apartment buildings are beginning to sell.

"Throughout this recession, only the foreclosures and the bottom-of-the-barrel properties were being sold. Now the quality, Class A properties are starting to trade," he said.

Another deal supporting the contention that apartment values are rising is the $4 million sale in June of Corona West Apartments, a 160-unit complex in Corona, to Rancho Cucamonga-based Southern California Housing, a nonprofit group. Kalmikov said the seller, a Santa Ana investment group called CMOW Corp., had bought the building for $3.1 million last December.

"Clearly, we're rebounding," Kalmikov said.