One response to changing market conditions by developers has been to build their office projects in phases, thereby "delaying a given project's subsequent groundbreaking until initial phases have logged significant preleasing activity," Grubb & Ellis' team points out. Additionally, many developers may reconsider certain projects: "scrapping plans for a behemoth mid-rise in favor of two smaller buildings." Nonetheless, Grubb & Ellis' researchers say "the addition of new sublease space will pose a headache in the months to come, especially when noting that much of fourth quarter's 320,458 sf of available sublease space came from newer class A inventory."

CBRE's researchers conclude the upshot of all of the market changes and the economy is that overall net absorption has slowed in the Inland Empire office sector, sliding to 61,936 sf in the fourth quarter, compared to 213,409 sf in the third quarter. At the same time, the overall vacancy rate increased from 11.22% 11.85% in the 23.5-million-sf inventory, according to CBRE. Grubb & Ellis pegs the vacancy at right about the same number as CBRE, but it points out that the figure is up from 7.6% on a year-to-year basis.

The slowing momentum of the economy has finally pushed average asking rates down, according CBRE. It says that the average ask across the entire IE office market was $1.98 per sf, down from $2.01 per sf in the previous quarter.

Despite any temporary setbacks, both CBRE and Grubb & Ellis see a bright future for the Inland Empire office market. Notes Grubb & Ellis: "Aging Baby Boomers eyeing retirement, many of whom will move to the Inland Empire, will strengthen the region's demand for medical office space." Kaiser Health Foundation Plan already has acquired a new 23,709-sf building in Temecula and a proposed Murrieta hospital campus with supporting office space recently was announced.

Santa Ana-based Grubb & Ellis cites other factors working in favor of the Inland Empire market, including the region's population of more than 4.4 million that remains underserved by professional companies, a diversified tenant mix that is not linked solely to the residential sector, rental rates that are very competitive compared with surrounding counties and a growing college-educated population that is willing to work for lower wages and salaries in order to avoid time-consuming commutes to other counties. "Such advantages will ultimately work in the region's long-term favor," Grubb & Ellis says.