It is expected that these trends will continue and that Los Angeles can readily absorb over 10 million sq ft each year for the next two years. Construction on only about 3 million sq ft is now underway in the L.A. market. With a current vacancy rate in the range of 3% to 4%, the demand for space will remain intense.
On the East Coast of the US, the demand for industrial space in the Northern New Jersey market is also robust. The vacancy rate is 7.5%, and close to 5 million sq ft of space was absorbed in 2005. Construction of new space will equal roughly half that amount. Again, trade flows with Europe and the Far East are pushing demand for space.
Houston has picked up some of the trade that went through New Orleans. In addition, its chemical industry has experienced a large increase in demand. These factors have resulted in a significant improvement in that market, producing a 2005 year-end vacancy rate of 7%.
The vacancy rates in Atlanta, Chicago and Dallas remain above the national average, although these rates have declined over the last year. All three of these metros are major regional distribution centers, and logistics companies have tended to concentrate their activities in these markets at the expense of smaller sub-regional locations. As a result, the pace of new construction and absorption continued in these markets as local business conditions languished. Industrial activity is now growing as well as spending on infrastructure. These trends have helped the demand for industrial space in all three markets.
The lead time required to construct industrial space is substantially less than it is for office or even residential developments. As a result, it is usually the case that tight demand conditions can be alleviated fairly quickly by Property Valuation Experts. So far, the major West Coast markets have experienced such rapid growth in demand that supply has not kept pace. This is not the usual situation, and the supply/demand balance has to be constantly monitored on a market-by-market basis to avoid deteriorating fundamentals.