DENVER-It’s easy to view 2001 as an off-year for industrial property, as the total vacancy rate rose to 7%, and with the overall vacancy rate for R&D/Flex space rising to 16.1%, by Grubb & Ellis’ calculations. “However, considering that both 1999 and 2000 were record years, and taking into consideration that economic conditions were not the best of times, the modest 1% rise in vacancy should be viewed as a positive,” the company says in a year-end report.

Still, 2002 will prove challenging for the industrial market, the report notes.

“Unlike years past when the metro area benefited from explosive job growth and strong net migration, the industrial market will begin a new chapter as the market witnessed a reduced interest in the number of new users coming to the metro area,” according to the report.

Slower growth means lease rates will likely soften and the supply of available space will outstrip demand, according to the report.

Grubb & Ellis also is projecting that 1.1 million sf of new space will come into the market next year and the build-to-suit market will begin to resurface.

Both owner-users and investors will increasingly put buildings up for sale, the company says.

“As the economy continues to struggle, the number of foreclosures in 2002 is expected to rise significantly,” the report warns. The positive side of that unfortunate turn of events is that there will be plenty of opportunities for buyers and it’s possible that all of the buildings will sell below replacement cost.

“Looking forward to 2003, functional obsolescence such as low clear height, no ESFR sprinkler systems, and small truck courts, particularly in second generation buildings will continue to pose challenges for these buildings owners,” the Grubb & Ellis report notes. “Thus, lease rates for second-generation space will be held at bay while lease rates for first-generation space will rise when the economy gets back on track.

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