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WASHINGTON, DC-Industrial activity remains strong in port and distribution hubs, with relative weakness around many manufacturing centers, according to the latest commercial real estate report from the National Association of Realtors. Nonetheless, acquisitions are off as the credit crunch continues to hobble investment.

The organization says international trade continues to play a pivotal role in industrial real estate, with Los Angeles outpacing almost every other primary industrial market in terms of investment transactions due to the strength of its ports. In addition to Los Angeles, the areas with the lowest industrial vacancies include San Francisco, Tucson, Salt Lake City, Orange County, CA and Portland, OR, all with rates of 6.1 % or less. Los Angeles is expected to remain a landlord’s market for the next four to five years.

The NAR forecasts that vacancy rates in the industrial sector will average 9.6% by Q4, up from 9.4% in the same period last year. It projects annual rent growth at 3.3%, down from 3.6% last year. Net absorption of industrial space in 58 markets tracked is forecast to total 134.7 million sf in ’08, up from 120.2 million sf last year.

Industrial transaction volume in 07 reached a record $46 billion, compared with $38.9 billion in ’06, but the organization says investment this year will most likely be as much as 40% below the boom-year highs. According to NAR chief economist Lawrence Yun, even though the commercial real estate market in general is holding essentially even with no significant changes in vacancy rates or rent growth, investment continues to fall. “Under normal circumstances, near-full occupancy coupled with positive rent growth would be of strong interest to investors, but we’re not seeing that,” he observes. “The credit crunch has filtered into the commercial real estate market.”

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