BOSTON — The industrial real estate market fell short of expectations during Q2, with demand slightly below anticipated levels, according to a report by Colliers International, the global real estate services firm. That said, rents managed a fairly robust increase during the April through June period.

Second quarter absorption came in below expectations, although it surpassed the first quarter — with occupied space increasing by 36.5 million square feet (msf), compared with 30.9 msf in Q1. Industrial absorption totaled 50.3 msf in the year-ago quarter. In addition, as anticipated, Q2 industrial construction completions increased over those posted during Q1- pushing the vacancy rate up 25 basis points.

“The story so far in 2007 is that demand for warehouse space is a little on the weak side, but nothing to get concerned about,” remarked Ross Moore, senior vice president and director of market & economic research at Colliers International. “We remain bullish on the industrial leasing market, as both the domestic and global economic backdrop looks relatively favorable. We don’t view the rise in construction as a sign of overbuilding – but rather a reasoned response to very tight availability in select submarkets. Despite the recent volatility in financial markets, the U.S. industrial market remains in a bullish phase.”

Indeed, demand drivers reflected a relatively robust economy during the second quarter. The ISM index remained above the critical “50” level — at 56 for June — with a similar reading expected for July. Advance Q2 GDP shows the U.S. economy expanded at 3.4 percent the annual rate. Clearly, the global economy continues to post robust growth, suggesting the export sector will remain a bright spot.

Q2 industrial vacancies measured 8.23 percent, versus 7.98 percent during Q1 and 8.34 percent during the year-ago quarter. Warehouse rents increased by 3.4 percent in Q2, after rising by 1.9 percent during the first quarter. This left rents up 8.3 percent over the year.

Just a handful of markets (6 percent) are forecasting demand to drop in the current quarter, with the vast majority anticipating leasing markets to either remain steady, or expand.

Second quarter new construction totaled 54.0 msf, versus 41.2 msf during Q1’07 and 38.2 msf of completions in the year-ago quarter.

Industrial developments under construction increased 5.0 msf during the second quarter, reaching 145.8 msf. This compares to 140.8 msf during Q1 and 127.1 msf at the close of the year-ago quarter.

”MARKET”/ ”WAREHOUSE/DISTRIBUTION SPACE ($PSF) JUNE 30, 2007”

*Honolulu, HI / 14.28

*San Francisco Peninsula — San Mateo, CA /10.92

*San Diego, CA / 9.36

*West Palm Beach, FL/ 9.30

*Washington, DC /8.53

*Ft. Lauderdale/Broward County, FL/8.36

*Los Angeles, CA/ 8.04

*Orange County, CA /8.04

*Las Vegas, NV /7.68

*Portland, OR/ 7.58

*Miami, FL/ 7.57

*Boise, ID/ 7.08

*Sacramento, CA / 6.96

*New Jersey — Northern /6.60

*Phoenix, AZ / 6.59

*San Jose/Silicon Valley, CA/ 6.48

*Hartford, CT/6.00

*Boston, MA/5.84

*Indianapolis, IN/5.75

*Orlando, FL/5.68

*San Joaquin County/5.64

*Baltimore, MD /5.62

*Riverside/San Bernardino-Inland Empire, CA/ 5.58

*Tampa, FL/ 5.57

*US Average/ 5.56

*Oakland, CA /5.52

*Pleasanton/Walnut Creek, CA/ 5.52

*Detroit, MI / 5.25

*New Jersey — Central /5.10

*Houston, TX/ 5.05

*Minneapolis, MN /4.80

*Philadelphia, PA /4.75

*Chicago, IL /4.70

*St. Louis, MO /4.32

*Stockton/San Joaquin County, CA/ 4.32

*Denver, CO/ 4.25

*Kansas City, MO /4.25

*Raleigh, NC / 4.25

*Reno, NV /4.20

*Charlotte, NC /4.11

*Seattle, WA/ 4.00

*Atlanta, GA /3.91

*Columbia, SC /3.90

*Charleston, SC /3.85

*Jacksonville, FL/ 3.85

*Fresno, CA/ 3.84

*Louisville, KY/3.65

*Nashville, TN / 3.61

*Dallas-Ft. Worth, TX/ 3.60

*Bakersfield, CA /3.55

*Cleveland, OH / 3.50

*Little Rock, AR / 3.25

*Greenville, SC /3.13

*Cincinnati, OH / 3.10

*Columbus, OH /2.75

*Memphis, TN /2.73

”’Colliers International is a global affiliation of independently owned commercial real estate firms. The organization’s 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,439. For more information, visit http://www.colliers.com”’

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