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Office Developer Breaks Ground With Confidence

Inland Empire: Work starts on second phase of speculative project in Ontario as demand for leased space grows.


In a vote of confidence for the Inland Empire office market, American Real Estate Properties Inc. has broken ground on a 70,000-square-foot speculative office building in Ontario.

Empire Towers II is the second phase of a 25-acre office park that American Real Estate Properties had put on hold for several years in the wake of the recession that had gripped the area for much of the 1990s. The first phase--Empire Towers 1, a nine-story office building--was completed in 1991 and is now nearly fully leased.

"We have been waiting and watching the market until we could justify starting construction," said Mark A. Jacobs, who is handling leasing at the project for American Real Estate Properties, a privately owned, Baltimore-based real estate development and management company.

The three-story, 70,000-square- foot building going up in the second phase of the project is scheduled to be completed and ready for tenants by January. If the demand for space continues to grow, American Real Estate Properties additionally plans to build twin four-story buildings totaling 240,000 square feet on the site, which will include a lake and landscaped plazas.

Much of the new commercial construction in the Inland Empire has been of sprawling warehouse and industrial facilities. But as office rents and occupancy levels have risen, office development is once again beginning to make financial sense for some builders.

Near the Empire Towers project, a 46,000-square-foot speculative office building in One Corporate Plaza is already under construction, said Greg Martin, a commercial real estate broker in the Ontario office of Grubb & Ellis.


Many users of back-office space--such as insurance claims processing departments--have expanded or relocated into the area, driving up demand for new space. A few landlords have raised rents twice in the past year to take advantage of the strengthening market, area brokers say.

"The market has been tightening up consistently for the past 18 months or so," according to Martin. "The corporate businesses are recognizing that we have an abundant, inexpensive labor pool. People here will take a little less money so they don't have to drive to Los Angeles or Orange County."

Inland Empire office developers and landlords also expect to benefit as rents rise and large blocks of vacant space get harder to find in neighboring Orange and Los Angeles counties.

Commercial rents for comparable buildings run 20% to 30% lower in the Inland Empire--which includes Riverside and San Bernardino counties--than in nearby areas, said Jacobs at Empire Towers.

"We anticipate that we will be getting spillover [demand] from Orange County and Los Angeles," Jacobs said.

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