New and growing businesses have gobbled up much of the vacant warehouse and industrial space in the Spokane market over the past year, dropping vacancy rates substantially, experts in those markets say.


Activity is expected to remain strong at least through this year, with indicators approaching healthy levels not seen since the Sept. 11, 2001, terrorist attacks.


The most opportunity in any of the real estate markets right now is in the industrial market, says Scot Auble, president of the Spokane-based Auble Jolicoeur & Gentry real estate appraisal firm here.


A vacancy survey completed recently by the appraisal firm puts the overall vacancy rate for industrial space in the Spokane area at 6.9 percent as of February, down from 8.2 percent a year earlier and 12.8 percent two years ago. Industrial space in these surveys includes warehouse space in addition to manufacturing space.


By far the largest amount of industrial space in the Spokane area is in Spokane Valley, where nearly 14 million square feet of industrial space is located. The vacancy rate in the Valley dropped to 6 percent from 8.7 percent a year earlier, the survey says. At 6 percent, that rate is the lowest found since Auble started conducting the industrial survey in 2002.


The Spokane Business & Industrial Park, which is located at 3808 N. Sullivan in the Valley and includes 100-plus buildings with a total of more than 5 million square feet of floor space, leased up a lot of vacant space late last year and early this year, says Dean Stuart, director of marketing for Spokane-based Crown West Realty LLC, which owns and operates the Park.


He says leasing activity at the large complex has slowed somewhat this summer.


Still, he says, Were pacing well ahead of budget right now and well ahead of where we were last year.


The Parks overall vacancy rateincluding office spacecurrently is 9 percent, Stuart says. While thats only one percentage point lower than a year ago, a few factors have contributed to the current vacancies.


First, Spokane-based cabinetmaker Huntwood Industries Inc. moved in February from its 260,000-square-foot manufacturing space in the park. Also, Huntwood moved its discount store, Bargain Hunt, out of another 60,000-square-foot space there in June. Stuart says the Park has leased out about half of that manufacturing space to other users, but the rest remains vacant.


Also, Stuart says, the Park has completed two new buildings with a total of 90,000 square feet of floor space, which currently are being marketed.


Most other parts of the Spokane area have industrial-vacancy rates that either are down or no lower than a year ago. The exception is the relatively small Liberty Lake industrial market, where the vacancy rate jumped to 18 percent from 11.7 percent a year earlier.


On the West Plains, industrial vacancies dropped to 1.8 percent, from 4.3 percent, and in the central business district, which has only 294,000 square feet of industrial space, the vacancy rate fell to 1.8 percent from 9.3 percent.


Industrial vacancies on Spokanes North Side and in East Spokane remained essentially the same as last year, at 7.3 percent and 8.9 percent, respectively.


Meanwhile, a separate survey conducted by Mark Lucas and Tracy Lucas, real estate agents at Spokane-based Kiemle & Hagood Co., found a drop in vacancy rates as well. That survey shows a total vacancy rate of 5.5 percent at the end of 2005, compared with 8.2 percent a year earlier.


The Lucases have conducted their annual survey since 1993, and at 5.5 percent, the vacancy rate they found at the end of 2005 is the lowest theyve seen since 2000.


Also, the Lucases track net absorption of vacant space, which is the amount of new floor space newly leased minus the amount of newly constructed space that has come onto the market. In 2005, 1.43 million square feet of industrial space were absorbed, substantially more than the 840,000 square feet of space absorbed in 2004 and the 500,000 square feet in 2003.


Tracy Lucas says that since so much of the available space was taken off the market last year, he doesnt expect the market to absorb as much space as it did last year.


In the current market, Lucas says, rental rates have increased somewhat, but theyre still well below rates that industrial space commanded before the terrorist attacks of 2001.


Rental rates likely will be pressured upward if demand continues to be strong and inventory dwindles. Auble says a relatively small amount of new industrial space is being developed in the Spokane area, because increases in construction costs have made such projects unfeasible. He says developers, in many instances, cant fetch the rents needed to make projects pencil out.


High construction costs also keep companies in the rental market that otherwise would want to develop their own facilities, fueling additional demand.


Theres a large gap to be bridged between market rents and feasibility for new construction, Auble says. If demand continues, then there will be a significant increase in market rents over the next 18 months.


Despite high construction costs, some developers are planning industrial buildings here currently.


Chris Bell, a commercial real estate agent at Spokane-based Tomlinson Black Commercial Inc., says that Prium Development LLC, of Tacoma, Wash., plans to build a 20,000-square-foot speculative industrial building in its Prium Industrial Park, a mostly undeveloped 54-acre industrial park along Electric Avenue, on the West Plains.


Bell says the company hopes to break ground on that structure this summer. It will take three or four months to complete it, he says.


We hope this will be a catalyst for that part of the West Plains, he says.


Also, Spokane real estate executive Mark Pinch is heading up a group thats developing a 21,000-square-foot industrial complex at 2621 N. Felts Lane, in Spokane Valley. Mark McLees, a real estate agent with Tomlinson Black Commercial Inc. whos marketing the property, says construction started in March, and the building likely will be completed next month.


McLees says the four bays there are being sold as commercial condominiums, and he currently is negotiating with some potential buyers.


Contact Linn Parish at (509) 344-1266 or via e-mail at linnp@spokanejournal.com.