L.A. and New York lead the steady recovery for industrial sector

The industrial facility vacancy rate fell 0.5% to 10.2% in the second quarter of 2005, according to CB Richard Ellis. The national vacancy rate was 11.2% a year earlier and peaked at nearly 12% two years ago.

Los Angeles and New York metro areas have the lowest vacancy rates, in the 6.5–7% range. These low vacancy rates are the combination of several factors. First, years of permit delays for new facilities prevented considerable speculative building. Also, New York and Los Angeles have been the major beneficiaries of the surge in warehouse and light manufacturing space needs for the rapidly expanding U.S. foreign trade. Finally, the dominant export industries in both cities has recently grown rapidly, causing income to rise faster than in the rest of the country. Finance and professional services are the dominant export industries in New York, while entertainment, technology, and defense are the rapidly growing industries in Los Angeles. None of the cities with the highest vacancy rates have a dominant position in servicing foreign trade.

For factories, the absorption of existing space will quicken. However, the completion of new supply also quickens, so the vacancy rate will decline slowly. Spending on factories is currently 25% higher than a year ago.

For warehouses, space absorption is slower due to continuing improvements in inventory management. However, vacancy rates will continue to ebb lower as new space supply remains very low. Warehouse construction spending has slipped 5% in the last year.

U.S. cities with the highest and lowest industrial vacancy rates
(% change in the last year)