In the December 7 issue of the Wall Street Journal, MATTHEW STROZIER reports:

Developers in Southern California’s Inland Empire are moving forward with the region’s first speculative warehouse and distribution-center projects since the downturn, in a sign of the surprising resilience of consumer spending.

During the depths of the recession, few would have bet on construction appearing this soon in this region east of Los Angeles that was clobbered by the housing crisis and recession. By the end of 2008, the market had a glut of 36 million square feet-the equivalent of more than 600 football fields-of empty industrial space, as home builders, area businesses and other would-be tenants cut back on their supply pipelines.

But CBRE Group Inc. reports that about 11 million square feet has been absorbed thanks partly to the steady increase in retail sales. Despite the struggling economy, consumer spending on discretionary items has increased 16 consecutive months through November, according to the National Retail Federation. The current holiday shopping season also is off to a healthy start.

Indeed, developers are moving forward with eight speculative warehouse buildings in the Inland Empire, totaling about 4.8 million square feet, according to commercial real-estate brokerage Jones Lang LaSalle Inc. These warehouses typically target a single tenant, either a logistics company or big-box retailer like Wal-Mart or Home Depot.

Take the case of a speculative 692,000 square-foot warehouse being developed in Moreno Valley, Calif., in the eastern side of the Inland Empire. The $44 million development, designed with a state-of-the-art “cross-dock” loading system and 11 acres of trailer parking, is the first new warehouse project for First Industrial Realty Trust Inc., a Chicago-based real-estate investment trust, in over three years.

First Industrial bought the land for $14 million in 2007 when prices still were high. Then the market took a turn for the worse, and the company was forced to wait for conditions to brighten.

But First Industrial broke ground earlier this year as demand from big-box retailers pushed rents higher. On average, Inland Empire landlords are asking $3.88 per square foot on single-tenant warehouse properties of at least 250,000 square feet, an increase of 8% from one year ago, according to Boston-based Property and Portfolio Research, a forecasting firm. The vacancy rate has dropped to 1.5% for single-tenant facilities that are 500,000 square feet or bigger.

“You build spec if the demand is there and the supply is minimal,” says Johannson Yap, chief investment officer for First Industrial. “When you meet the market at the right time, you can achieve pretty good rents.”

The Inland Empire-the country’s seventh-largest warehouse market with just under 400 million square feet-still is much cooler than it was during the boom years. In 2006, for example, developers added 64 speculative projects with a total of 25.8 million square feet, according to Jones Lang.

This year, leasing appears to be on pace to beat last year’s volume of about 31 million square feet, with big leases being signed by companies like Hewlett-Packard Co. and scooter-maker Razor USA LLC. While that is a big improvement from 2008, when volume was about 20 million square feet, it is below 2005, when leasing volume came close to 35 million square feet.

Also, neither First Industrial nor other developers with projects under way have leased their space yet. This raises the specter that developers are once again getting a little too enthusiastic. But developers and brokers say numerous tenants are looking for space in the Inland Empire market. Mr. Yap says that demand is being driven by consumer imports from Asia and companies consolidating distribution to save money.

The Inland Empire is popular because the region’s warehouse stock is relatively new, but its rents are lower than in Los Angeles and Orange counties. A network of highways and rail lines provide access to the busy ports of Los Angeles and Long Beach.

Elsewhere in the country, industrial leasing is recovering much more slowly, if at all. Vacancy remains high compared with the boom years, and construction starts are way down, according to data from CoStar Group Inc.

“Overall, in most markets, rents cannot justify spec development,” says John DiCola, head of investments at KTR Capital Partners, a New York-based private-equity firm that builds and acquires industrial real estate. “We don’t expect to see it in most of the markets.”