Inland office vacancy drops

The Inland Empire office market is coming back to life, albeit slowly.

Riverside and San Bernardino counties absorbed 13,600 square feet of office space during the second quarter of this year, according to Newmark Grubb Knight Frank.

That was a modest amount, but enough to lower the region’s vacancy rate to 15.3 percent, according to the commercial brokerage’s second-quarter report on the Inland office market.

Overall, the office vacancy rate was 10 basis points lower than the first quarter and 150 basis points lower than the second quarter of 2014. A basis point is the equivalent of one one-hundredth of a percentage point.

During the last four years, the Inland region’s office market has missed only one quarter of positive net absorption.

After suffering a slight drop during the first quarter, asking rents increased 2.5 percent during the second quarter, to $1.62 a square foot.

Office rents in the Inland Empire have been up and down during the past four years, but that trend might be going away: last month’s rates were up nearly two percent year-over-year, up 3.1 percent compared with the middle of 2013 and up 6.9 percent compared with three years ago, according to Newmark Grubb Knight Frank.

A long-time office broker in the Inland region had a straightforward explanation for why the Inland region’s office market is on the mend.

“It’s all tied up with the housing market,” said Rick Lazar, senior vice president Coldwell Banker Commercial Sudweeks Group’s Redlands office. “Housing is coming back, and when that happens the mortgage companies need office space, the title companies need office space, the lenders need office space, and so on. It all comes back to housing.”

While the Inland office market is improving, it will be awhile before the region gets any speculative office development, according to Lazar.

“I think we have to get down to seven percent vacancy before you see that happen,” Lazar said.