Space For Lease cent of new starts in 2004, and 59 percent in 2003.

“Frankly, the jury is out,” Sahling said,

Developer ProLogis sees lower warehouse vacancies, on whether more stringent financing higher rents in major distribution markets this year ^{regimens will continue to restrain new} construction. He thinks they will. It takes High demand for distribution cen- “We just had a meeting with about 30 six to eight months from groundbreak-ter space combined with unusual of our operators around North America,” ing to ribbon-cutting on a new distribu-restraint among builders of new Richards said. “Everyone was talking tion center, and easily double that for warehouses means lower ware- about being short on space and needing smaller developers who don’t have a land house vacancies and rising rents new space, looking for new people and bank of waiting properties like ProLogis for third-party logistics providers the challenges of growth.” does. Developers know a lot can change and shippers in 2006. Richards agreed warehouse pricing in a year.

ProLogis, a major commercial real estate power is on the sellers’ side right now. Among U.S. markets, recovery from developer, said inbound shipping volume, Leasing rates are rising at most of the sluggish economic times earlier this especially through U.S. West Coast ports, 500-some facilities Associated Warehous- decade came first to coastal markets, helped drive vacancies down to 8. 3 percent es offers in North American and Euro- Sahling said. Los Angeles, Long Beach, in 2005 (from 9. 7 percent in 2004) in the pean markets. Calif., Seattle, Phoenix, Las Vegas, Reno,

Nev., and Portland, Ore., in the West,
and Tampa, Fla., Orlando, Fla., south
“I think people are Florida and Washington are considered
fully recovered from earlier slumps,
going to approach Sahling said.
_{real estate space} Of the top 30 U.S. markets ProLogis
surveys, all but northern and central New
conservatively.” Jersey appear recovered or well on their
way. Lackluster warehousing demand and
deliveries of new space above what the
market has been able to absorb pushed
nation’s top 30 distribution markets, while “We had a glut of space in the (Califor- New Jersey vacancies up to 8. 9 percent in
2005 demand rose 3. 7 percent. nia) Inland Empire as recently as five years fourth quarter 2005, from 8.1 percent at
“The main takeaway is that the (eco- ago,” Richards said. “Now we’re all full.” year-end 2004.
nomic) recovery is continuing and, in As big as ProLogis is, with 258 million
effect, it’s going at the same rapid pace ew construction surged in the second square feet in the United States and _{that it was in the first half}” _{of 2005, said} N_{half of 2005, Sahling said, though he another 120 million square feet world-}
Leonard Sahling, first vice president at expects it to moderate in 2006. Develop- wide, warehousing remains a highly frag-
ProLogis Research Group, the research ers will exercise restraint in new con- mented market.
arm of the Denver-based developer. struction in part because financing There are few estimates of total size of
However, shippers and 3PLs waiting for regimes have become stricter, Sahling the U.S. warehouse market. Richard Arm-
new space may have awhile to wait, said, and in part because property mar- strong, president of research firm Arm-
Sahling said. New warehousing starts in ket information is more transparent. strong & Associates in Staughton, Wis.,
ProLogis’s top 30 markets totaled 115 mil- As a result, “I don’t think we’ll see provides one, estimating total U.S. com-
lion square feet. That’s a big recovery from much more acceleration in starts than we mercial warehouse footage –– that avail-
the cyclical low of 62 million square feet in saw last period,” he said. able for lease to shippers, 3PLs and other
2002, but the 2005 figure is just a 2. 3 per- Richards agreed: “I think people are third parties –– at 875 million square feet
cent increase over the previous year. going to approach real estate space con- at year-end 2004.

Photo courtesy Crowley Maritime

 

Postponement strategies –– under servatively. We’ve had some pretty good Sahling estimated the total of all U.S. which shippers and third-party logistics years lately and the longer that goes on, warehousing space — including both providers delay product customization the more conservative people tend to be.” for-lease commercial space and public and packaging until final sale –– boosted On the other hand, Sahling said 76 warehouse property bought for private value-added warehousing demand, said percent of new starts in 2005 were specu- use by shippers — at more than 6 billion Mark Richards, vice president of Associ- lative projects with little or no pre-leas- square feet. ated Warehouses in Orange, Calif. ing. Speculative construction was 66 per- BY WILLIAM HOFFMAN