TEXAS SNAPSHOT, APRIL 2011

El Paso Industrial Market

An uneven recovery, but a recovery nonetheless, continues in the industrial segment of the real estate market in El Paso, Texas. Slow but steady absorption of vacant space was witnessed in the fourth quarter with vacancies dropping again from 13.1 percent in the third quarter of 2010 to 12.6 percent at the end of the year. This marks four consecutive quarters of positive results in the El Paso industrial arena. This trend is likely to continue given the activity present in the marketplace today.

The uneven recovery applies to the major submarkets and landlords in El Paso as well. Butterfield Trail Industrial Park, located next to the International Airport, shows a vacancy rate of 24.8 percent, with almost 1.7 million square feet of vacant space with no relief in sight. At the same time the Northwest Corporate Center and Santa Teresa submarkets have vacancies of .7 percent and 10.3 percent, respectively.

Quality space continues to be leased, albeit at lower rates than owners would like to achieve. Landlords such as Verde Realty, Prologis and Eastgroup Properties have maintained steady occupancies in their industrial portfolios, outpacing the market. Given the homogeneity of lease rates, companies looking for space have chosen the highest quality space available at lease rates similar being offered by landlords with inferior quality space.

The trend of steady absorption is encouraging and may result in new construction in the near future. Rents will continue to stabilize in the industrial sector. Occupancy will increase due to continued activity and no new construction. Construction costs will decrease as the University of Texas-El Paso and Fort Bliss construction ends. Local banks will provide capital for transaction in El Paso.

— Patrick Leonard is with Grubb & Ellis, Best/White LLC in El Paso.

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