Catellus Development's endless summer Over the summer, San Francisco-based Catellus Development Corp. has left quite a mark on Southern California's industrial/distribution landscape, drastically expanding its presence in one of the United States' most active and competitive industrial markets. Since June, Catellus has leased more than 600,000 sq. ft. and sold a 109,900 sq. ft. building in Southern California.

What's more, Catellus' biggest Southern California plans revolve around Rancho Cucamonga Corporate Park, which was recently approved by the city of Rancho Cucamonga, Calif., part of California's Inland Empire. Catellus worked with the city for eight months to gain approval for the mixed-use project, which will eventually include more than 2 million sq. ft. of build-to-suit and speculative industrial, retail and flex space. The company already has signed El Segundo, Calif., logistics provider GATX to a 440,000 sq. ft. build-to-suit and North Wilkesboro, N.C.-based home improvement retailer Lowe's for a 160,000 sq. ft. store in the park.

Southeast of Los Angeles, the Inland Empire has become the nexus of Southern California industrial development because of greater availability and lower costs of land compared to Los Angeles and Orange counties. But despite available land and lower costs, competition is stiff and margins are thin, according to Charles A. McPhee, senior vice president of commercial development for Catellus' Southwest region. If interest rates and cap rates increase, some players may be forced out of the market, but developers are still gambling that the Inland Empire's profitability will improve rather than decline, McPhee says.

"Although the activity's been substantial in the last couple of years, we haven't seen much upward pressure on rents," he says. "There's been a lot of land acquisition activity over the last year that I believe is betting on a spike in rents. It will be interesting over the next year to see if that holds true because this market has not shown that."

"When does it hit that point where the curve of available product and available land starts diminishing, and the demand stays stable?" McPhee asks. "When you hit that point, you'll see rents start to spike."