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Industrial Market Shows Strength: Report

A new survey finds that industrial market vacancy is falling throughout the nation’s top 30 distribution markets. Yesterday, industrial REIT ProLogis (NYSE: PLD) released a pair of semi-annual research reports on the industrial property market.

The first report, U.S Property Market review, finds that the average vacancy rate in the top 30 markets fell from 9.7% to 8.3% between mid-year 2004 and 2005. Asking rents increased by 5% during that period, and ProLogis expects broad-based market rent increases to continue through 2006 as the balance of supply/demand continues to tighten.

ProLogis’ U.S. Construction Pipeline Report finds that new industrial development appears to be in check despite these strong economic conditions. While the pace of development starts increased in the second half of 2005, deliveries of new product are nonetheless expected to total between 120 million and 130 million sq. ft. in 2006. That total is roughly equal to just 2.5% of existing inventory, which ProLogis characterizes as quite small.

“Many observers are wondering whether developers may have exchanged their former restraint for unbridled exuberance,” says Leonard Sahling, ProLogis’ first vice president of research.

“We do not think so. Far from having free rein, commercial property developers today are constrained by numerous internal and external checks and balances—enough to maintain a tight leash on new construction.”

Additional key findings:

*23 of the top 30 markets in the U.S. posted vacancy-rate declines in the second half of 2005

*Net absorption totaled a remarkable 167 million sq. ft. during full-year 2005. In 2004, by comparison, only 114 million sq. ft. of net absorption was achieved.

*Speculative building accounted for 76% of total starts in 2005, compared with 66% in 2004 and 59% in 2003.

Both reports drew upon market data compiled by a range of sources, among them ProLogis market officers, data vendors and brokerage companies. The data covers industrial fundamentals across the nation’s 30 largest distribution markets during the latter half of 2005.

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