The office market in the Inland Empire saw another quarter of increased leasing activity and new space added.
Steady tenant demand led to 156,083 square feet of positive absorption in the first quarter, almost half the 333,855 square feet of positive absorption seen in the fourth quarter,a direct result of new office space brought in the first quarter.
Some tenants still are consolidating their current office space, moving into larger and more modern facilities.
Population growth, a growing skilled labor force and changing demographics have continued to play a major role in shaping the Inland Empire office market.
As the fundamentals remain strong moving forward, investment activity is expected to increase during the next few quarters. The asking rental rate increased to $1.96 per square foot in the first quarter, representing a nearly 9% increase from $1.80 per square foot in the first quarter of 2006.
While supply has been in check with demand, the rising land values and construction costs are playing into the overall rental growth in the Inland Empire.
The West office market asking net rental rates showed substantial growth year-over-year, increasing by about 13% from $1.95 per square foot last year to $2.20 per square foot in the first quarter. Corona’s office market continues to hold the highest asking rental rate in the East at $2.15 per square foot in the first quarter.
The overall vacancy rate slightly increased in the first quarter to 8.4% from about 8% in the fourth quarter.
The Ontario office market witnessed a 2.8% increase in vacancy between quarters, rising from 9.3% in the fourth quarter to 12.1% in the first quarter. This was largely due to the 125,599 square feet of new office space brought to market with the completion of the Empire Towers V.
Despite the rise in vacancy in the West, the East office market showed a decrease. Vacancy in the East fell from 8.7% in the fourth quarter to 8.6% in the first quarter.
As new construction is added to the market, coupled with a slight reduction in demand in the first quarter, vacancy rates are expected to slightly rise during the next quarter and stabilize toward the end of this year when tenant demand increases.
New construction activity was robust for a second consecutive quarter, adding an additional 324,765 square feet to the Inland Empire office market. Much of the space was evenly divided between Riverside, San Bernardino, Ontario and Rancho Cucamonga.
There still remains 2.3 million square feet of office space under construction with 835,779 square feet set to be added to Corona’s office market at the end of this year and early 2008.
Analysis provided by CB Richard Ellis Group Inc.’s Global Research and Consulting.
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