BIG INDUSTRIAL MOVING

Local real estate watchers warned a year ago that a lack of industrial space available in Orange County for large tenants, combined with an upturn in rental rates, could lead to more area companies moving elsewhere.

It’s happening now.

In the past month alone, larger local businesses using close to 3 million square feet of industrial space in the county have made, or are close to finalizing, plans to move some or all of their operations to the Inland Empire, brokers said.

Companies picking up from OC include big players in the apparel, food distribution and home furnishing sectors.

“There’s a flat out migration to the Inland Empire occurring now,” said Jeff Cannon, corporate managing director for the Irvine office of Studley Inc., which represents tenants.

A key reason for Inland Empire relocations is rents that are 30% to 40% lower than in OC. But another major factor is the availability of large, new, built-to-suit buildings.

“A few years ago, I had lots of clients who said ‘I’ll never move to Corona, or to Riverside,'” said Chris Migliori, executive vice president for commercial brokerage firm GVA Daum. “Now, they’re starting to feel the pinch, and are reconsidering.”

Big local companies that want to expand, or have leases coming up for renewal, are finding themselves without many options. The situation is made tougher by an emphasis on industrial development of smaller, for-sale projects in OC.

“Ten years ago, if you were looking for (large blocks of) space in Orange County, you maybe had 10 to 15 options within a few miles,” Cannon said. “Now, you’re lucky to find two or three good options in the same range.”

In most cases, the companies are deciding to split up their operations.

Businesses,particularly image-conscious apparel and surf companies,are keeping executive offices or headquarters in OC, while moving space-intensive distribution and warehouse operations to the Inland Empire, Cannon said.

That’s the case with Irvine-based American Sporting Goods Corp., one of the latest companies to look east.

The company, a maker of upscale athletic shoes and clothing, is in the process of relocating its warehouse and distribution operations, currently in Irvine and Anaheim, to Fontana (see story, page 1).

The move to San Bernardino County was born of necessity.

American Sporting’s Irvine building at 2323 Main St.,near John Wayne Airport,is slated for a major housing redevelopment. And its Anaheim location is being leased to someone else.

The company is searching for OC office space. It plans to move distribution operations to Fontana during the next three months.

“It wasn’t a question of cost,” said Jerry Turner, chairman of American Sporting, which has been in Irvine for about 20 years. “There just wasn’t enough space locally.”

Rent increases are having a bigger effect on other local tenants, said Jeff Chiate, senior director for the Irvine office of Cushman & Wakefield Inc.

“We’re clearly seeing 10% to 15% bumps from just nine months ago,” he said.

The overall asking rent for industrial space in OC hit 87 cents per square foot in the second quarter, up 12% from a year earlier, according to Grubb & Ellis Co.

For larger properties in demand, the rent increases can be even bigger.

“It’s becoming hard for companies to justify staying,” Chiate said.

The difference in rent can add up quickly for buildings in the 300,000- to 500,000-square-foot range.

American Sporting is paying $7.7 million for a five-year lease for its 320,000-square-foot Fontana building, which is owned by Sares-Regis Group of Irvine.

Ricoh Electronics Inc., meanwhile, is paying $10 million for a 40-month lease of 500,625 square feet of space in Tustin that once was the home to Bedrosians Tile & Stone and, earlier, Steelcase Inc.

The Ricoh lease, which was completed this month, is one of the largest local industrial deals in recent years.

American Sporting isn’t the only local company looking to Fontana.

Sole Technology Inc., a Lake Forest-based shoe and clothing maker, recently bought a new 315,000-square-foot warehouse and distribution building in Fontana.

The company had been looking for more than a year to expand beyond its 120,778-square-foot warehouse space in OC.

The Fontana distribution complex is one of five owned and operated by Sole Technology. The company, best known for its etnies shoe line, is the county’s seventh largest apparel employer.

One of the top space requirements for distribution companies these days is a 30-foot-high clearance. Buildings with this feature only started being built about five years ago, said Brandon Birtcher, president of Irvine-based Birtcher Development & Investment Co.

Not many larger buildings in OC have these specifications, which is another reason companies have had to look elsewhere.

“There’s just a lack of first-class product available (in OC),” Birtcher said.

Birtcher Development recently completed an eight-building, 817,000-square-foot industrial development in Corona. About 434,000 square feet of that space was taken up by companies that moved their distribution operations from OC.

It isn’t just the larger companies that are looking to the Inland Empire.

Celebrity Foods Inc., an Anaheim-based company that delivers food to people’s homes, recently bought a 25,000-square-foot industrial building in Corona for $2.9 million.

The facility gives Celebrity Foods a larger distribution center, which wasn’t available in Anaheim, said GVA Daum’s Migliori, who brokered the deal.

The shift of industrial space to housing projects in Irvine and Anaheim’s Platinum Triangle has made it much harder to find space of any size, Migliori said.

OC’s industrial vacancy rate hit 4% in the second quarter, according to Grubb & Ellis. That’s down from 7.5% in the first quarter and 13% a year earlier.

There’s about 1.3 million square feet of industrial space under development in OC. But most of it is for smaller buildings that will be sold.

Tenants absorbed about 1.3 million square feet of industrial space in the second quarter. There’s some 270 million square feet of total industrial space in OC.

One area of OC that looked likely to provide a big chunk of new industrial development during the next decade just shrank.

Lennar Corp. proposed last month to boost the number of homes it plans to build at the former El Toro Marine base in Irvine,at the expense of commercial development.

The change would add more than 5,800 homes to the Heritage Fields site, while cutting back retail and industrial space by 30%.

The Miami-based company’s plans for the site now include a total of 9,500 homes, while commercial and industrial space would be 3.7 million square feet.

The company’s initial plans were for 3,625 homes and 5.3 million square feet of commercial and industrial space.