Warehouse construction: steady, strong

The warehouse market is steady, with space demand and new supply pretty much balanced. Rental rates are rising at a 3.5% pace, according to Property & Portfolio Research, slightly faster than inflation. The national vacancy rate is just above the typical 8.5% level, and as a result, warehouse construction spending (after inflation) will be steady to slightly higher in the next two years.

Warehouse construction spending dipped toward the middle of the year following a year-long period of weak economic growth. However, increasing growth in job site activity is expected late this year and should last well into 2008—a result of a surge in warehouse project starts in August and September.

Warehouse construction starts are up 22% year-to-date through September compared to the first nine months of 2006, with warehouse construction concentrated in a small number of major distribution centers serving ocean ports and population centers. More than half (55%) of warehouse starts this year are concentrated in six states: California, Florida, Georgia, Illinois, Pennsylvania, and Texas. Warehouse space is also being added in fast growing regions to serve the local population. Nevada, Utah, and Idaho now account for 8% of warehouse starts.