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Relief on the horizon for tight industrial market

• A limited supply of aging warehouse space that fails to meet tenants’ needs, combined with strong demand from last-mile delivery services, has created a tight market for industrial space in the East Bay. Recent deal activity has been stymied by a lack of options, and rents are reaching high watermark levels.

• Almost 1.6 million square feet of speculative space is expected to hit the market in the third quarter, which will help alleviate the tight market conditions, especially since only 121,000 square feet of this space is currently pre-leased. This new space will give tenants a greater number of options in the future and if not pre-leased before delivery, could cause vacancy to rise to 7.0 percent by mid-2019.

• The situation will create more room for tenants to maneuver, which could create new migration opportunities for tenants looking to relocate to the East Bay and last-mile delivery businesses looking to service the Bay Area.

• Even as new deliveries potentially lead to higher vacancy, tenants should not expect relief on rental rates, as this new space demands some of the market’s highest rents.

Source: JLL Research

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