location, location, location

As with all things real estate-related, reaction to a new market outlook report for warehouse/distribution center space will depend almost entirely on the reader's location. Titled U.S. Property Market Review: 30 Major Distribution and Warehouse Markets, the research report from ProLogis assesses supply and demand in different regions of the country. There's good news for some companies looking to expand; bad news for others. Companies searching for space in San Francisco's South Bay; Louisville, Ky.; Baltimore; Dallas; St. Louis; Cincinnati; and Tampa, Fla.; where demand is expected to lag,may be in luck, the report says. But companies hoping to expand in the Los Angeles basin, Reno, Las Vegas and most of New Jersey will likely face a lot of competition for available space.

In general, warehouse space in the United States will be harder to find in the months ahead, according to ProLogis, which is a major real estate developer that provides distribution facilities and services. The report says the overall vacancy rate for distribution/warehouse space was expected to peak at 11.5 to 12.0 percent at the end of 2003 before beginning a gradual decline that would continue throughout 2004. The longer-term outlook calls for more of the same: ProLogis expects demand to be what it terms "mediocre to average" over the next two years.

Yet even that mediocre demand of 2.5 percent will likely outpace development. Inventories in the top 30 markets (which taken together account for about 4.5 billion square feet of distribution center/warehouse space) rose by only 1.6 percent in 2003, according to the report. The authors project that another 65 million to 70 million square feet will become available this year.

In the meantime, those looking to lease warehouse/DC space will likely find there are still good deals out there.Weak demand has meant there's been little pressure on rents. "Asking rents are still losing ground nationwide," the authors report, adding that they believe it could still be a year or two before landlords have the leverage to raise rents.