Office space sector strong

Contrary to a slowing housing market, office and industrial development is moving full speed ahead in the Inland Empire.

But these aren't your average Inland Empire buildings, and they're attracting more than just blue-collar workers.

Within the concrete tilt-up warehouse and multistory office projects popping up all over the region, a new type of professional work-space is making the region its home, according to local researchers who study the subject.

Class A office space might look like skyscrapers in downtown Los Angeles, but in places like Rancho Cucamonga and Ontario, these buildings come in four- and five-story, glossy-looking edifices that tower above swaths of strip malls and major thoroughfares.

"They've taken off in the last five or six years at warp speed," said Mary Sullivan, a research analyst with Grubb & Ellis Company, a commercial real-estate advisory firm.

For most of the Inland Empire's work-space history, office and industrial developments came in small pockets of development, Sullivan said.

They were a step down from Class A, commonly referred to as Class B or C. You'd notice new construction projects, but they were few and far in between, and they didn't incorporate a mixed-use theme, she said.

But things have changed - big time.

You can now easily find high-end office and industrial space all over San Bernardino and Riverside counties, Sullivan said.

Redlands, San Bernardino, Riverside, Corona, Chino Hills and Diamond Bar are on this list of new work-space construction, where companies from Los Angeles and Orange counties are establishing office branches and attracting both white-collar and blue-collar workers.

According to the most recent Grubb & Ellis' quarterly "Office Market Trends Inland Empire" report, Class A, B and C office vacancy rates have hovered around 7 percent from summer 2005 to spring of this year, and have now risen to about 9 percent. Anything below 10 percent is considered a strong market.

Several of these new buildings are in high demand, pulling in big leases before construction is complete, Sullivan said.

"(It is) a real good barometer in the real-estate market," she said. "We've just kind of, in the last two years, hit our stride. Tenants are recognizing this as a place they want to be."

"Now, (office space) is timed to be here," said John Husing, a Redlands-based regional economist. "Once it hits, it never stops. From now on, it'll be an important part of the market."

Husing noted a couple of facts. Out of recent office construction across Orange, San Diego and Los Angeles counties, the Inland Empire has the greatest share, more than 35 percent. Compare this to 2003, when that number was near zero.

Throughout the late 1990s, builders spent $50 million to $60 million a year building office space here, Husing said. In 2006, they spent almost $308 million.

"It's a very recent phenomenon in the last 31/2 years," he said. "It wasn't there. Now, all of a sudden, it is."

What's also attracting office tenants is that an increasing amount of office buildings are being constructed near other types of developments, Sullivan said.

"You have an office building, and you may have next to that a hotel, and then some live-work lofts," she said. "It's not your stand-alone office product anymore. We're moving to a much more sophisticated product."

While the demand for Class A office space seems unstoppable for now, property construction and realty investment companies will no doubt be keeping a close eye on the local housing market's ripple effects into areas of office construction, Sullivan said.