Inland Empire leasing slows as job growth declines: demand remains high for tracts of manufacturing land.

Inland Empire leasing slows as job growth declines

Commercial office leasing in the Inland Empire this year has slowed from the rapid growth of the 1980s.

The sluggishness arises because employment growth has slowed down significantly in the past two years, said Brea-based market researcher Alfred Gobar. "Leasing activity and absorption are directly related to job growth in the financial, professional sectors and insurance sectors."

Unfortunately for local tenants, Inland Empire job growth was 40 percent less from 1988 to 1989 than it was in the boom days of 1986 and 1987, according to Gobar.

During each of the heady years 1984 to 1989, tenants snapped up 1 million more square feet of office space than was added to the market, which now has 9 million square feet of commercial office space.

But tenant demand decreased last year. Vacancy rates in the Inland Empire at 1990's end reached 23 percent with an additional 820,540 square feet of office space under construction, reports real estate brokerage Grubb & Ellis Commercial Real Estate Services.

The vacancy rate might be even higher because many real estate brokerage firms do not include in their tallies office buildings smaller than a certain size and vacant sublease space, Gobar added.

Real estate brokers estimate that there is now a 18-month to two-year supply of vacant office space in some of the region's cities. That does help tenants negotiate lease deals, and rental rates range from $19 to $24 per square foot annually.

The Inland Empire's boom was fueled by a combination of a large and skilled labor pool, affordable housing, transportation access, reasonable rents and modest land prices. Even today, despite the present space glut, real estate executives are optimistic that the area's affordable housing will continue to draw companies that want to tap the area's highly skilled workers.

Companies such as Shearson Lehman Mortgage Co., which have more plush high-rent space in Los Angeles County, have established satellite offices in San Bernardino for data processing and other labor-intensive clerical work - the so-called "back office operations." Tenants in Inland Empire office parks are primarily professional service firms or regional headquarters and sales offices for national corporations.

Though the area's office towers have been dependent upon the relocation of companies into the area during the 1980s, the Inland Empire has now reached a "second phase" of area growth with companies which moved here 10 years ago expanding employee-intensive operations and thus requiring additional space, said Coldwell Banker Commercial broker Richard M. Lee.

Demand is still high, however, for land in the area by large manufacturers seeking to set up factories, warehouses and distribution centers in the vast expanses of the Inland Empire. While land in the least expensive parts of eastern Los Angeles may average $15 a square foot, it's $5 to $7 in San Bernardino and Riverside counties.

As an example of the trend, 3M Co. purchased 42 acres of the Union Pacific Property in Ontario, while Boise Cascade Corp. moved into 400,000 square feet of industrial space on 27 acres in the Empire Business Center in Mira Loma.

Inland Empire cities with the largest square footage of commercial office space include the Ontario/Rancho Cucamonga area, San Bernardino and Riverside. The largest of the three, Ontario in the western Inland Empire, is centered around the Ontario International Airport and includes the cities of Montclair and Upland. Other submarkets include Victorville, Moreno Valley, Colton and Redlands.

Ontario, which has one of the largest inventories of unleased office space, mushroomed from a market of no quality commercial office space in 1984 to 2.2 million square feet and growing today.

"Ontario explosed overnight because of a lot of easy construction," said Coldwell Banker's Lee. "In the short term it will take 18 months to absorb, but in the long term, the sky is the limit."

New Ontario buildings, however, are still drawing tenants. The 195,500-square-foot, nine-story Empire Towers was completed in early March and has already signed several tenants including Mitsubishi Cement Co., said Ralph Murphy, vice president for Baltimore-based American Trading Real Estate Properties Inc., developer of the building.

The developer has also purchased an additional 25 acres at the office site, The Ontario Center, from Chevron Land Co. and in the next five years plans to build three more buildings on the parcel for a total of 600,000 square feet of commercial office space, added Murphy.

Another new building in the city is the Ontario Corporate Center. The nine-story, 100,000-square-foot tower was completed in 1989 and is 60 percent occupied with tenants including Southern California Edison Co., The Los Angeles Times Inland Empire bureau and engineering firm Camp, Dresser & Mckee.

Although there are few office buildings in the works in Ontario, land was just purchased for a major retail complex at the intersection of the 10 and the 15 freeways in Ontario. The $200 million Ontario Mills Mall, which will be developed on a 139.5-acre site, is a joint venture project of Forest City Development and Western Development. The mall is scheduled to open in the fall of 1993 and will be anchored by 10 major retailers.

In San Bernardino, the commercial real estate market has experienced more "slow and steady" growth, said Mark McAdams, a broker for Cushman & Wakefield of California Inc.

Major projects include the 153-acre TriCity Corporate Centre in San Bernardino, developed by Rancom Realty Funds IV & V. One the newest of the 10 buildings in the center is the Lakeside Tower, which is comparable to the best buildings and could fit in easily in Los Angeles' Westside.

Other projects include the 43-acre Cooley Ranch in Colton, the four-story Sunwest Professional Building in San Bernardino and the nine-story Vanir Tower in San Bernardino.

Nearby commercial office building projects are being planned throughout the region in the Coachella Valley in the southeast part of Riverside County. Developers buying land in the area include Birtcher Co. of Orange County.

Riverside County's Moreno Valley is becoming an important center of industry as Los Angeles County manufacturing plants move to the area for lower land prices and less restrictive Southern California Air Quality Management District air emission regulations.

Companies that have recently built plants in the area include Pepsico, which put up a soft drink bottling and distribution center, and Borneo International Furniture, a Korean-based company.

BiF, which recently opened its U.S. headquarters in the City of Industry, chose California for its U.S. base of operations "because of the Moreno Valley factory," scheduled to open in May or June of this year, said company Vice President and General Manager Joo Kim. The 150,000-square-foot building on 40 acres of land will house a $20-million manufacturing division, which Kim predicts will employ between 150 and 300 people from the Los Angeles area and abroad.

Lomas Realty USA, a member of the Lomas Financial Group, also plans to build Stoneridge Centre, a 236-acre mixed-use project in Moreno Valley that will have commercial space, a large medical center with a 250-bed hospital and recreational areas. The project will be built on the intersection of Nason Street and the Pomona Freeway.

PHOTO : Inland Empire: Growth slows

PHOTO : Inland Empire: New buildings still draw tenants