The warehouse construction market in the United States is steady at a high level. New supply is keeping pace with demand for new space and, therefore, rental rates are rising at a 3.5% pace, slightly faster than overall inflation. The national vacancy rate is steady at just over the 8.5% long-term average.

Warehouse construction spending, after inflation, will be steady to slightly higher in the next two years. This follows a dip in spending in the middle of 2007, after a year-long period of weak growth in the economy. Resumed growth in warehouse job-site activity is expected late in 2007. This will persist well into 2008, following the recent surge in warehouse project starts in August and September. The quick rebound reflects the recent jump in economic growth in the middle of 2007.

Majority of Warehouse Starts have been in only Six States
Warehouse construction starts are up 22% year to date through September compared to the first nine months of 2006. Warehouse construction is concentrated in a small number of major distribution centers sited to serve ocean ports and population centers. So far in 2007, 55% of warehouse starts have been in six states: Georgia, Pennsylvania, Florida, California, Illinois 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 U.S. warehouse starts. Large population states that are not distribution centers, such as Michigan and Massachusetts (and that are not growing) have very little warehouse construction.

The subpar economic growth expected over the next year will restrain demand for additional storage space. Lingering credit availability problems from the subprime residential mortgage mess will also be a restraint on financially-marginal distributors and distribution centers. The key demand driver will be improved space, either in a better location, or with more automated handling equipment.

Urban Areas with Lowest and Highest Warehouse Vacancy Rates
According to Property & Portfolio Research (PPR), the urban areas with the lowest warehouse vacancy rates at this time (third-quarter 2007) are: Los Angeles (3.6%); Riverside CA (3.7%); Palm Beach FL (4.3%); Las Vegas (4.8%); and Orange County CA (5.8%).

The highest warehouse vacancy rates (again according to commercial real estate experts PPR) can currently be found in: Raleigh (16.2%); Atlanta (15.0%); Hartford (14.3%); Charlotte (13.5%); and Boston (12.8%).

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