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MIRA LOMA, CA-Brokers for both sides of last week’s lease by IDS USA at AMB Galleano Distribution Center say the transaction may signal an upsurge in market confidence. The 645,311-square-foot lease is the largest signed in the Inland Empire this year and the second over 500,000 square feet.

“Lot of tenants have been exploring but not taking actions,” says Frank Geraci, an executive vice president in the Ontario, CA office of CB Richard Ellis. “This is a statement that somebody’s stepping up and making a commitment for this size square footage.”

Geraci, who with CBRE colleagues Steve Sperber, John Isaacs and Walt Chenoweth represented the tenant in the transaction, says other tenants are definitely looking but generally have bee reluctant to take action. The year’s other large deal was Watson Land Co.’s 517,346-square-foot lease to Kenco Logistics Services in Redlands, CA in February. Prior to that, Geraci tells GlobeSt.com, the only transactions were smaller warehouse deals. He says the completion of more than one million square feet in just two leases sends a signal of confidence that could provide the spark other companies need to break through their inertia.

In the most recent deal, IDS USA, a clothing distributor that is part of Hong Kong’s IDS Group, signed for the entire 645,311-square-foot building at 11905 Landon Dr. The tenant will use the facility for consolidation and expansion of its Los Angeles regional operations. Tim O’Rourke, an executive vice president at Jones Lang LaSalle who represented AMB in the Galleano transaction along with JLL colleague Mike Fowler and Mike McCrary of Colliers International, says the deal demonstrates a positive trajectory for the market, though he acknowledges the Inland Empire will continue to face challenges in light of the ongoing economic downturn.

According to Kim Snyder, managing director of AMB Property, interest in industrial space has picked up in the last 60 days after a long period of inactivity. While he says demand remains well below peak levels, tenants have shown renewed interest in shopping for space.

According to Grubb & Ellis, the Inland Empire saw 12 sales and leases larger than 100,000 square feet in Q1. Nonetheless, the quarter ended with 2.49 million square feet of negative absorption, largely because of tenant bankruptcies and consolidation. At the same time, had some 25.8 million square feet of new completions not been added to the market over the past 15 months, the quarter’s 4.27 million square feet of leasing would have left the market with positive absorption.

Geraci reports rents have declined dramatically, dropping probably 20% to 25% from the height of the market. Grubb pegs current annual asking rents for warehouse and distribution space at $4.41 a square foot, but the brokerage says landlords are aggressively competing to maintain their cash flows by offering substantial spreads between asking and effective rental rates through inclusion of free rent and generous tenant improvement allowances.

In Geraci’s and O’Rourke’s opinion, the lower rates should further encourage more tenants to make lease commitments, particularly since the number of options available enable them to get much higher quality space than they could ordinarily get for lower rents. O’Rourke terms the IDS deal “a flight to quality for the user,’ which could inspire other companies to look for opportunities to improve their situations.

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