Overall asking rents declined by two cents per sf to $4.08 per sf annually, triple net. Standard industrial rents increased by six cents per sf to $3.20 per sf on an annual triple net basis and warehouse/distribution rents rose a penny to $3.88 per sf. The R&D/flex sector dropped 13 cents to $6.85 per sf, with the big hit coming in the east southeast far and north far submarkets, where the triple net, per sf asking rate fell 92 cents and 25 cents, respectively.

Since asking rents have stabilized, tenants are starting to realize that "now's the time to make a deal," Guerrero tells GlobeSt.com. "We've begun to see longer lease terms." There are still some concessions in the market, but he says the window of opportunity will decline by year-end. "We expect the overall vacancy rate to decline and will hit 8% by the end of 2004," he adds.

Six warehouses, totaling 345,950 sf, delivered in the second quarter. The largest was 126,500-sf warehouse and design center for Flooring Services of Texas at 10555 W. Sam Houston Parkway in the northwest far submarket. Clay Development completed a 104,000-sf warehouse in Battleground Business Park for Delta Chemicals, which signed a 10-year lease for the project.

With 499,635 sf of speculative space under construction, developers have shifted their focus to build-to-suit and owner/occupied development, which accounts for about 84% or 2.5 million sf of the under-construction projects. Wal-Mart recently started construction on a two-million-sf distribution center in Cedar Crossing Business Park near the Port of Houston. The Wal-Mart facility, under scrutiny for its funding from the Permanent School Fund of Texas, will deliver in 2005. Guerrero says there is speculation Wal-Mart will be expanding its port space after two years. New construction could pick up, but "developers will need to carefully decide which particular submarket it's feasible to build," he stresses.