Ontario becomes hotbed of Inland Empire activity; Toyota breaks ground on $75 million distribution hub.

Toyota Motor Sales U.S.A. Inc. broke ground in June on a $75 million project in Ontario -- where much of Inland Empire's commercial real estate action is takin place.

Toyota's 760,000-square-foot Ontario Parts Center, scheduled to be completed in 1996, will be the company's largest parts procurement and distribution center i the world.

Industrial space brokers said Toyota is just one of many companies in recent years that have chosen the Inland Empire, and Ontario in particular, as the sit for their distribution centers.

The availability of land, large warehouse buildings, proximity to Ontario International Airport and easy access to freeways serving the rest of Southern California are all factors contributing to the emergence of the area as a growing distribution center.

According to the Riverside office of brokerage firm CB Commercial Real Estate Group Inc., the Inland Empire's industrial vacancy rate has declined 2.51 percent in the past year, primarily because of the leasing of large spaces. The rate had dropped to 11.13 percent at the end of the second quarter, compared with 13.64 percent a year ago and 11.54 percent at the end of the first quarter this year, CB Commercial reported.

"The big boxes are in demand," said Jay Dick, an industrial broker with CB Commercial who represented Deans Bank in its recent sale to Bedford. "The marke for smaller spaces is still pretty soft. But if you're looking for big space, the biggest single building available now is probably about 150,000 square feet."

Dick said the differences in demand are reflected in rents for large and small spaces. Usually, the smaller the space is, the higher the rent. But in today's market, "if you wanted 25,000 to 50,000 square feet now, you could probably get it for a dime less (per square foot) than the big box space," he said.

According to Dick, national distributors like the JC Penney Co., Firestone, Bridgestone, Mercedes-Benz and many others have chosen the Inland Empire for distribution centers.

A few even have chosen the area for new manufacturing and distribution centers, like the 30-acre site at the Koll Mira Loma Commerce Center where Metal Container Corp., the can manufacturing subsidiary of Anheuser-Busch Inc., began construction in the first quarter on a $150 million, 350,000-square-foot factor that is scheduled to be completed in 1995.

Walter Hahn, an economist at the Orange County office of accounting firm Kennet Leventhal & Co., said the Inland Empire's industrial market has emerged as proportionately bigger and more significant than the office market, which is relatively small by comparison.

Hahn said that, although the Inland Empire industrial and office markets were both overbuilt during the 1980s, the industrial market "is better off than the office market" because of the appeal to national distributors of large tracts o open land where they can lease or build huge distribution facilities.

By contrast, he said, office markets don't generally attract big national accounting and law firms until there is a significantly larger overall economy than now exists in the Inland Empire. "It's just not an area yet that has a big enough economy to attract the big, national firms that are the big office space users," he said.

"The net absorption of office space has been almost nothing for the past three years, but there has been a modest positive absorption of industrial space," Hahn said. "The industrial space vacancy rate was approaching 20 percent at one time, so the current level (of 11.13 percent) is a big improvement."

Hahn said the industrial vacancy rate declined to its current level because there has been little new construction other than build-to-suit projects -- lik the Toyota and Metal Container facilities and some smaller build-to-suits.

"There have been a number of owner-user buildings in the 10,000- to 30,000-square-foot range because land and construction are both cheap right now so this is the time to do it," Hahn said.

Besides new construction, the industrial real estate activity in the Inland Empire has been characterized by owner-users buying existing buildings. Among such deals in the second quarter was the purchase by Preproduction Plastics, a plastic injection molding company currently located in Los Alamitos, of a 44,000-square-foot building in the McKinley Industrial Park in Corona for $1.3 million.

Despite such owner-user deals, however, Hahn said, rents are still too low to make speculative construction feasible in either office or industrial. "Rents would have to increase a good 20 to 30 percent for that to change," he said.

According to Mike O'Brien, a vice president and office specialist with CB Commercial, the Inland Empire office market has a vacancy rate "in the 20-percent range overall," but the lack of new construction is gradually producing "a firming of rental rates."

Office vacancy rate comparisons for the first quarter of 1994 and the second quarter of last year were unavailable because of changes in the way CB Commercial is calculating the rates this year.

O'Brien said most of the second-quarter office deals were small, none of them comparing to the 98,000-square-foot deal in the first quarter in which Aetna Life Insurance Co. leased space in two buildings owned by General American Life Insurance Co.

Even if there were big users looking for space, O'Brien said, there wouldn't be much available space to accommodate them. "I don't think there's more than a handful of contiguous spaces over 10,000 square feet throughout Riverside and San Bernardino," he said.

In the retail market, Rancon Financial Corp. recently signed a deal with Blockbuster Entertainment to construct two build-to-suit facilities at Tri-City Corporate Centre: a 15,000-square-foot Blockbuster Discovery Zone and a 15,000-square-foot Blockbuster Music store. Both are to be built by Rancon, wit Blockbuster taking 10-year leases with an option to buy.

Hahn noted that the Blockbuster deal typifies the kind of activity taking place in the Inland Empire retail market, deals involving superstores and big-box retailers.

Also in the quarter Capstone Properties bought the 163-room Days Inn in Riverside.