WESTERN SNAPSHOT, JUNE 2005

Inland Empire Office Market

Jacobson

Meanwhile, average rents rose 9.4 percent year-over-year, and 3.6 percent during the quarter, while gross activity posted its largest quarterly total during the past 4 years as net absorption was approximately 233,000 square feet. Given these conditions, vacancy in the Inland Empire office sector is expected to remain relatively flat in the coming quarter, as anticipated net absorption gains should keep pace with the amount of new construction scheduled for completion.

The Riverside submarket ended the fourth quarter with the lowest total vacancy at 8.2 percent, followed by the greater Ontario Airport area, which registered a 13.2 percent vacancy. While overall Inland Empire average asking rates moved from $1.60 per square foot to $1.75 per square foot year-over-year, the Riverside submarket ended the fourth quarter with the highest average asking rate of $1.94 per square foot, followed by the greater Ontario Airport at $1.86 per square foot.

The office sales and investment market continues to be strong with prices reaching new highs in most submarkets, as pent-up demand and a large supply of available capital continue to keep demand levels well above available supply. Overall demand in the user market is expected to experience steady growth this year, with forecasted job growth leading to increased economic expansion and space needs.

Noteworthy office transactions in the Inland Empire during last quarter include CIP Gateway 1 & 2 LLC paying $13.8 million ($140 per square foot) for the seven-building, 95,569-square-foot Gateway Pointe in Rancho Cucamonga. The seller was Property Reserve Inc. In Ontario, Citizens Business Bank purchased a 24,600-square-foot building, located at 3833 Ebony St., for $6 million (nearly $244 per square foot) from Telefutura Television Group Inc. Also in Ontario, Platinum Partners LLC purchased 3333 Concours, Building 6 for $1.52 million ($175 per square foot) from DIX Development Company. In Corona, Centex Homes signed a 10-year, $18 million lease for 64,544 square feet currently under construction at 1265 Corona Pointe Court.

Pacing new activity is the Riverside submarket with some 350,000 square feet of space currently under construction, more than double that of runner-up San Bernardino.

From an overall perspective, the Inland Empire has a base inventory of approximately 720 office buildings that are 10,000 square feet or larger. Again, the Riverside submarket holds the largest amount of inventory, representing 37 percent of the total market, with San Bernardino and the greater Ontario Airport checking in at 32 and 31 percent, respectively.

Total vacancy, asking lease rates and gross activity have remained virtually constant, while construction activity has dipped, all of which contribute to a stabilizing Inland Empire office market as the second quarter continues.

Chad Jacobson is vice president of research and marketing for GVA DAUM in Los Angeles.

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