Vacancy rate rises as new industrial buildings appear.

Millions of square feet of new industrial space added in 1998 pushed the Inland Empire vacancy rate into double digits for the fourth quarter.

The rate, which climbed to 10.5 percent from 8 percent in the third quarter, was attributed to the large amount of construction in the western region of the Inland Empire, which includes Chino, Fontana, Mira Loma, Ontario and Rancho Cucamonga.

Still, cheaper land and easy accessibility via air, freeways and rail have helped make the region a strong choice for major warehouse-distribution buildings and industrial parks.

Due to the heavy activity, the expected year-end gross amount of industrial square footage built or leased was a record 22 million square feet. That includes 17.5 million square feet of leases and sales on speculative or existing buildings and about 4.5 million of sites built to suit.

"The Inland Empire is the most dynamic industrial market in the country," said Henry Johnson, senior vice president at Trammell Crow Co. "Where else could you develop 10 million square feet in one year and still have a strong market?"

Lease rates continue to rise but still average less than many areas in Southern California. At the end of the year, the rates were about 28 cents it square foot per month for a building over 100,000 square feet. "The rates are a minimum of 20 percent cheaper than other Los Angeles industrial submarkets," says Chris Atkinson, marketing director for Trammell Crow. "The Inland Empire has become known as the low-cost, high-quality alternative."

While the industrial market stayed steady, the office vacancy rate dipped slightly from 27.1 percent in the third quarter to 24.1 percent in the fourth.

CB Richard Ellis leased 27,000 square feet in the Empire Towers II building in Ontario. In addition, Merrill Lynch & Co signed a 10-year lease for 8,000 square feet in the same complex. "It's significant because it is strong blue-chip companies moving into that area," Johnson said.

Johnson attributed the continuing glut of office space to the development of projects that remain unleased. He believes the vacancy rate will ease in 1999 its development slows and existing space is absorbed.

Meanwhile, industrial space remains the primary force in the market, where projects often have it massive scale. Chuck Belden, associate director at Cushman & Wakefield Inc., said 60 percent of the 128 million square feel of industrial space in the western Inland Empire is leased out in portions of at least 100,000 square feet.

In the fourth quarter, Majestic Realty Co., headquartered in the City of Industry, broke ground for its Majestic Airport Center in Ontario. Three of the 10 buildings planned are currently under construction and are expected to be completed in February. Leases for all three are in the works. The completed project should total just over 3 million square feet.

Pier 1 Imports, a home furnishings company, broke ground on a 750,000-square-foot warehouse in Ontario, as it prepares to move out of a smaller warehouse in Rancho Cucamonga.

Belden says such strong activity is expected to continue for the next 12 to 18 months.

In a major sale during the fourth quarter. Rancon realty fund sold 38.5 acres along Ontario Mills Parkway to World Bazaar for about $5.8 million. The company plans to build an industrial facility on the site east of the intersection of interstates 10 and 15.

A 347,820-square-foot building - one of six in Trammell Crow's Centre Pointe Chino Project on Yorba Avenue - is being occupied by Montgomery Ward, after the retailer signed a five-year lease in the fourth quarter.

Atkinson said another indicator of the strong market is the number of speculative projects being leased early. "Approximately 85 percent of all spec development has leased or sold either prior to completion of construction or shortly thereafter this year," he said.