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Driven by a significant decline in new construction that will result in the nation’s second-lowest vacancy rate by year-end, Orange County moved up five spots to take top ranking in Marcus & Millichap’s midyear National Industrial Index, a ranking of investment potential. Last year’s leader Los Angeles fell to second position as imports from Asia continue to wane, restricting activity at the ports of Los Angeles and Long Beach. The Puget Sound region held on to third place despite a forecast of overall negative absorption because limited construction activity will keep vacancy largely in check, while Houston dropped two spots to fourth place due to the nation’s largest forecast inventory increase. Denver rose two positions to fifth place, as expanding alternative energy companies should support fundamentals in the metro, despite the lingering recession.

San Francisco fell two spots to sixth place due to deep job losses, but the nation’s lowest vacancy rate kept the metro near the top of the ranking.Portland, OR also dropped two places to seventh place as a result of forecasts for below-average absorption as a percentage of existing inventory. San Diego recorded healthy rankings in nearly every measurement used in the index, allowing the market to hold eighth place, while Oakland, CA rose six spots to ninth place thanks to an overall vacancy rate and forecast vacancy change that are both expected to be below the national average.Northern New Jersey also advanced six places to round out the top 10. The market will record more modest vacancy increases than the nationalaverage this year because of moderating construction activity.

The index is a snapshot analysis that ranks 28 industrial markets based on a series of forward-looking supply and demand variables. Markets are ranked based on cumulative weighted-average scores for various indicators, including expected employment and population growth, vacancy, construction, and rent changes. According to Marcus & Millichap, regardless of its investment rankings, rents are forecast to contract in every market in the index. The brokerage says the global nature of the recession not only has slowed port activity but has also resulted in fewer goods traveling across the country, lessening demand for warehouse space in distribution hubs.

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