Warehouse vacancy rates dip; starts drop

The national warehouse vacancy rate slipped marginally to 8.8% in the second quarter, but will likely remain steady through 2008 as last year’s 38% surge in warehouse starts is completed during a period of slower economic growth.

Although the 2% annual decline in the inventory/sales ratio due to improved logistics management stalled at 1.3% over the last year, inventories will continue to get leaner relative to sales, reducing warehouse space demand.

Developers have cut the value of warehouse starts 52% this year through August, compared to the same period last year, to avoid interrupting the steady, but modest, rise in rents during the last two years.

Trade with Asia through southern California ports remains the key driver of warehouse demand. Los Angeles accounts for nearly 20% of warehouse demand and will attract an even larger share of new construction in 2007-08 because of its exceptionally low vacancy rates.

The high and low of U.S. warehouse vacancy rates
(2006 Q2 vacancy rate %)