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ONTARIO, CA-The Inland Empire’s office market continues to withstand the national recession, California’s lackluster job growth and tentative tenants, according to a new report by Grubb & Ellis.

Grubb & Ellis research for the third quarter of this year showed the office vacancy rate at 11.9% in Riverside and San Bernardino counties, where the relatively small (just under 15 million sf) office market has often outperformed its larger neighbors in recent years. The third-quarter vacancy rate was down from 13.1% in the previous quarter and 14% in the third quarter of last year.

Sales and leasing of Inland Empire office buildings for the first three quarters of this year has already surpassed the activity for all of last year, according to Mary Sullivan, regional client services manager in the Ontario office of Grubb & Ellis. The year-to-date total of nearly 537,000 sf of activity compares with a total of 239,000 sf for all of 2001. Sublease space remains relatively limited in the two-county region, as has speculative construction of office projects.

The Grubb & Ellis report points out that the Inland Empire office market has benefited from a population shift that has brought more professionals and managers to the region, which traditionally was primarily a blue-collar bastion.

The newcomers are moving in to buy houses that are more affordable than those in Los Angeles, Orange and San Diego counties, and the changing population now provides more potential workers for companies that open office operations in the Inland Empire.

At the same time, according to the Grubb & Ellis report, office tenants like banks, call centers, real estate firms and health care providers are moving in to serve the growing population.

Grubb & Ellis forecasts that these factors will enable the Inland Empire office market to continue to buck national trends, finishing this year with declining vacancy rates and positive net absorption of space. G&E calls this “an achievement that many large national markets will not be able to match this year.”

However, the report warns that the Inland Empire market cannot continue to flourish all alone because it is small and is affected by conditions in surrounding areas.

“If the national or regional outlooks continue to darken, it would not bode well for this suburban submarket,” the report says.

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