PORTLAND-The area industrial market is officially in recovery phase. Both the manufacturing/warehouse/distribution sector and the R&D/flex sector made impressive showings this quarter, racking up solid net absorption that dropped vacancy rates, according to the latest report from the local office of Grubb & Ellis. Indeed, according to G&E the second quarter marked the first time in three years that the R&D/flex sector has shown any significant signs of improvement, with even the beleaguered class A flex market seeing tenant activity.Overall market vacancy dropped a full point to 9.9% in a market with 126 million sf of inventory. Vacancy in the 93.7 million-sf manufacturing/warehouse/distribution sector dropped almost a full point to 8.9% on more than one million sf of positive net absorption. Vacancy in the 32.3-million-sf R&D/Flex sector fell to 12.8% during the quarter on 462,000 sf of positive net absorption.Rental rates in both sectors remain stagnant and new construction is still dominated by build to suits and owner built properties, according to the report. The average triple-net asking rate for R&D/Flex is $0.68 per sf per month. The average rate for sf manufacturing-warehouse-distribution space is $0.35 per sf per month.”The Westside submarkets saw significant activity this quarter and both the 217 Corridor and the Sunset Corridor registered strong net absorption and vacancy rates in both markets dropped as a result,” states the report. “Landlords will still need to be very aggressive on rental rates, particularly for class A flex, as there is still a large inventory of vacant space to burn through.”If growth remains on its current trajectory, the report predicts that the manufacturing/warehouse/distribution sector should be in good shape at this time next year with vacancy rates below 8% and upward pressure on rental rates. The construction pipeline has slowed to a trickle, and most of the projects moving ahead significantly pre-leased. If the positive momentum continues, a ramp-up in construction may occur in late 2005.The region’s largest submarkets, the 22.5-million-sf NE/Columbia Corridor and the 16.3-million-sf I-5 South Corridor both have vacancy rates under 9%, with NE/Columbia Corridor at 8.4% and the I-5 South Corridor at 7%. The eight-million-sf Northwest Portland industrial market has a vacancy rate of just 4%, the lowest in the region, according to the report.The tech-heavy submarkets of Beaverton/217 and the Sunset Corridor submarkets both saw positive net absorption in the second quarter but still have vacancy rates of more than 13%. Some 271,000 sf of positive net absorption in the Beaverton/217 market pushed vacancy down to 14.5%. The Sunset Corridor saw 202,000 sf of positive net absorption and now stands at 13.3%.

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