Inland Empire office, industrial markets stay flat.

Corporate cautiousness leads to sluggish first quarter

The percentage of vacant space available for lease in the Inland Empire declined slightly in both the office and industrial markets during the first quarter, while sales of commercial buildings slowed after a busy fourth quarter.

In the leasing market, 23.66 percent of the Inland Empire's 11.5 million square feet of office space was vacant at the end of the first quarter, virtually unchanged from 23.72 percent at the end of 1992, according to commercial brokerage firm CB Commercial Real Estate Group. A comparison with the first quarter of 1992 was unavailable because of changes in the way CB Commercial tracks vacant space.

The Inland Empire's industrial vacancy rate stood at 13.92 percent at the end of the first quarter, CB Commercial reported. That's a slight improvement from the fourth quarter of 1992, when 15.5 percent of the Inland Empire's 159.5 million square feet of industrial space was vacant.

Dave Burback, senior vice president at the Riverside office of CB Commercial, said the numbers reflected the generally flat performance of the market. He said activity picked up somewhat in March after being especially flat in January and February. But overall, the market remained sluggish in the first quarter.

"Corporate America is being cautious and companies want to maintain as much flexibility as possible," Burback said.

That means many are bargaining for shorter lease terms, although not all landlords will agree as readily to shorter terms, Burback added. Some landlords like shorter terms because they think they'll be able to command higher rates in just a few years. But others would rather have the tenant commit to a longer term to assure cash flow for a longer period.

Despite sluggish leasing in the first quarter, Burback said many prospective tenants are looking at space and making proposals.

As a result, the number of signed deals could increase later on this year, but Burback said it's hard to say when the leases may actually be signed because of the cautious approach most tenants are taking.

"Deals are simply taking longer to do today," Burback said.

One of the largest leases of the quarter was a $2.8 million, five-year deal for 145,000 square feet of distribution space at the 500-acre Vintage Industrial Park in Ontario.

Jeff Spindler, a senior vice president at the Ontario office of commercial brokerage firm Grubb & Ellis Co., said the space will serve as the new Los Angeles Distribution Center for W.W. Grainger Co., a $2 billion (annual sales) industrial products wholesaler based in Skokie, Ill.

Spindler said Grainger has already occupied the building, which is part of a three-building complex owned by Santa Monica-based Pacific Sterling Properties/Altair Investment Co.

Meanwhile, Bill Cortus, a spokesman for Temecula-based Rancon Financial Corp., reported steady leasing activity at that company's Tri-City Corporate Centre in San Bernardino and at Rancon Centre Ontario.

Rancon's biggest lease of the quarter was a 74,850-square-foot deal signed by United Pacific Mills, a distributor of animal feeds, at Rancon Centre Ontario, a 53-acre business park.

At the 153-acre Tri-City Corporate Centre, the company signed 47,927 square feet in new and renewed leases, Cortus said. Most of those deals were smaller leases of under 10,000 square feet.

In the sales market, Burback of CB Commercial said activity slowed noticeably.

"We had a flurry of sales in the last quarter of 1992, but it has slowed down this quarter," he said.

Despite this slowdown, brokers still closed some sales and reported continued interest from prospective buyers because of the volume of foreclosed properties being marketed by lenders and the Resolution Trust Corp.

Scott Brown, an industrial properties specialist with Grubb & Ellis' Ontario office, said interest has "been increasing steadily" among prospective buyers of smaller industrial properties in the Inland Empire.

For example, Brown represented City of Industry-based Valley Detroit Diesel Allison, a distributor of engines and related parts, in its $1.6 million purchase of a 50,688-square-foot industrial building on 5.79 acres in Mira Loma. Brown said Valley Detroit Diesel, scheduled to occupy the building in July, will employ 50 workers initially and expects eventually to employ 125 there.

One of the quarter's larger sales was a $5.7 million deal in which a limited partnership called Foothill City Center Ltd. bought a 76,467-square-foot office building and eight acres of land in Rancho Cucamonga.

Richard Lee, a CB Commercial vice president, said the building is 80 percent occupied and was sold by Westinghouse Credit Corp., which Lee represented in the deal.

In another of the Inland Empire's larger first-quarter deals, American Stores Inc. paid $5.25 million for a 9.5-acre, 90,000-square-foot shopping center in Indio that was formerly owned by Pay 'N Pak, a Seattle-based home improvement store.

In an RTC deal handled by CB Commercial, an Arcadia investor paid $1 million for a 25,158-square-foot retail center called The Courtyard in Loma Linda.

Gerry Lynch, a retail specialist with CB Commercial, said the sale was typical of some of the deals that are looking more attractive to investors now that prices have fallen.

"The fact that the buyer was purchasing a 50 percent-leased investment and assuming the lease-up risk reduced the price and made it more attractive," Lynch said. He added that seller financing provided by the RTC also helped seal the deal because financing remains one of the biggest obstacles in commercial property sales.