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Demand for office space remains strong

Sitting at the strategic intersection of the 15 and 215 freeways in the heart of Southwest California one can catch a glimpse of what the office building of the future will look like in this fast-growing region.

The 55,000-square-foot Garrett Corporate Center in Temecula is helping to set the new standard for office construction in Southwest California.

The 78,000-square-foot Crossroads Corporate Center is among a growing number of high-end office buildings in Southwest California. The tower is fully leased and expected to be the first of three other buildings totaling 273,000 square feet that form a corporate-style campus.

Rising four-stories from the Golden Triangle, the 78,000-square-foot Crossroads Corporate Center is among a growing number of high-end office buildings that one might see in highly urbanized San Diego and Orange counties.

"Tenants from the coastal counties of Southern California are used to seeing Class A office buildings," said Mary Piper, vice president with Lee & Associates. "As a result they expect to see better quality buildings with better location."

Crossroads has the location, the steel frame construction, style and amenities that set Class A office buildings apart from others. It is, in the words of Piper, one of the few true Class A office buildings in Southwest California

The tower is fully leased and expected to be the first of three other buildings totaling 273,000 square feet that form a corporate-style campus at the center of Southwest California, a dynamic region a one-hour drive north of San Diego that includes the cities of Temecula, Murrieta and Lake Elsinore and portions of Riverside County.

The Crossroads Corporate Center and the 55,000-square-foot Garrett Corporate Center in Temecula are setting the new standard for office construction in Southwest California.

Piper expects demand for high-end office space in the region to remain strong as Southwest California attracts more corporate clients wanting to set up regional and satellite offices staffed with a predominately professional work force.

So far demand is outstripping supply. The office vacancy rate for the region is a paltry 3 percent. That compares with a vacancy rate of as much as 13 percent for the rest of the Inland Empire.

Piper estimated that Southwest California has 1.8 million square feet of multi-tenant office space with an additional 650,000 square feet planned.

Although Lake Elsinore is experiencing a surge in commercial and industrial activity, Piper sees the beginnings of an office market there as well. With the arrival of big box retailers such as Home Depot and Staples, she expects demand for office space to reach as far north as Lake Elsinore, which is poised to take advantage of growth pushing up from San Diego and growth pushing south from Orange and Los Angeles counties.

Mark O'Connor with D.L. Phares & Associates said a spurt in new office construction in Southwest California parallels what already has occurred in the retail sector. Companies in San Diego and Orange County are realizing that they need a presence in the Temecula Valley or should expand what they already have. Fueling demand is the fact that, until just recently, there hasn't been any new office construction in Southwest California for about 10 years, O'Connor said.

Now with Crossroads, Garrett Corporate Center and Ridge Park Point in the hills overlooking Temecula, tenants have a choice of high-end office space.

Ridge Park, an 18,000-square-foot, three-story building, will be competed later this year.

Economist John Husing predicts that much of the region's job creation will occur in the white-collar office sector as businesses from San Diego and Orange counties relocate to Southwest California to take advantage of lower land and building costs.

The newcomers also are attracted by the highly educated work force, which is willing to work for less rather than having to make two- and three-hour daily commutes down Interstate 15 to jobs in San Diego.

Ultimately, Southwest California is the first stop for firms migrating or expanding out of San Diego County. What's more, professional firms will find themselves well situated to serve the 3.6 million people living in the Inland Empire today and the 5 million forecast for 2020.

Southwest California also is well positioned to provide the research, interns and graduates of four-year colleges that offices require, according to Husing. Businesses in the region are within 45 minutes of 16 campuses with a combined enrollment of 70,866 students. They include nationally known private, liberal arts schools like the Claremont Colleges and the University of Redlands. Impressive scientific work is being conducted at Harvey Mudd College, California State Polytechnic University at Pomona, and the University of California, Riverside. Loma Linda University is one of the top medical schools in the world. The University of La Verne School of Law is locating in Ontario. California State University at San Marcos, in nearby San Diego County, offers classes in the city as does UCR Extension and the University of Redlands.

Overall, the commercial real estate market in the Inland Empire is among the strongest in the region and shows no signs of slowing, according to commercial real estate brokerage reports.

Vacancies were down and lease rates were up in the first half of 2005.

"Tenants continue to move into the Inland Empire. Lease rates are rising, but they still aren't as high as Orange County and L.A.," Brandon DeVaughn, spokesman for CB Richard Ellis, told the Press-Enterprise newspaper.

The growth of the Inland Empire follows a familiar pattern in Southern California. The region started out as a set of suburban bedroom communities for neighboring Los Angeles and Orange counties. Industrial development came next, powered by the combination of the Ontario International Airport and the existing freeway network, making the Inland Empire into a warehouse-and-distribution hub. Now, office space has come to house the businesses seeking to expand into the growing trade area.

"It looks like Orange County did 30 years ago," said Michael Ross, a senior vice president in the Los Angeles office of Colliers Investment Services.

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