Modest commercial real estate gains seen

Retail, office and industrial development in Riverside and San Bernardino counties will make only modest gains -- at best -- during 2008, according to Inland brokers familiar with all three sectors.
"All three sectors are going to face challenges in 2008, and maybe beyond that," said Mary Sullivan, a former research director with Grubb & Ellis Co. in Ontario who works as a consultant to the local real estate industry.

"The fundamentals that have helped us in the past, like population growth and open space, will continue to be there," Sullivan said. "But there will be a lot of rumblings in the economy this year."
Big-Box slows Construction of "big-box" warehouse-distribution projects, a staple in the two-county region for the past 10 years, is expected to slow during the next 12 months, said Chuck Belden, senior director with Cushman & Wakefield Inc. in Ontario.

About 20 million square feet of industrial space was built in the two-county region during 2007, but the Inland Empire probably won't add that much industrial space this year, said Belden, who brokers large warehouse-distribution projects.

"Overall, I'm expecting a slower 2008," Belden said. "It will be a year of change, but we don't know how big the changes will be. A lot will depend on how deep the credit crunch goes, and whether the subprime mortgage problems last."

Belden called the housing market, which set record sales lows during much of 2008, the "bellwether" of the Inland economy.

"If people aren't buying houses then they aren't buying sofas, and if they aren't buying sofas then they don't need warehouses to store sofas," Belden said. "Housing affects everything."
The Inland region's office market will continue to grow during 2008, with Ontario, Riverside and Rancho Cucamonga remaining hot markets, said Natalie Bazarevitsch, first vice president with CB Richard Ellis Ontario.

One of the region's largest office developments, the 900,000- square- foot, three- building Ontario Airport Towers, is expected to open its first phase in July.

"There's a wait-and-see feeling out there, but I think as long as Ontario International Airport is doing well then office development will do well," Bazarevitsch said. "Our fourth quarter numbers weren't great, but I expect things to get better."

But Vindar Batoosingh, senior vice president with CB Richard Ellis Ontario and like Bazarevitsch an office specialist, said he is not so optimistic.

Inland office vacancy rates were 11.2% for the first 11 months of 2007, and more than 830,000 square feet of office space was built in both counties last year, Batoosingh said.
Those numbers aren't likely to be topped this year, he said.

"I'm trying not to be gloom and doom, but I see 2008 being flat," Batoosingh said. "I don't think it's going to be a terrible year, but I don't see a lot of office buildings being finished either, because not a lot of businesses are expanding."

Lewis Retail Centers in Upland also doesn't expect to open many new Inland projects during 2008. A Target store in Hesperia and some specialty shops at the 800,000-square-foot Eastvale Gateway in unincorporated Riverside County are the only developments scheduled to go online during the next 12 months, said Randall Lewis, the company's executive vice president.

"There's a lot of caution among retailers out there because of the subprime crisis," Lewis said

"They're going to go slow because the housing market has slowed down. They're going to be a lot more cautious in 2008 than they were in 2006."