Down from a high of $0.82 in 2001, the current weighted average asking rate for R&D and flex space is around $0.70 per sf. During 2006, that rate will catch up and pass the 2001 rate and settle in at $0.85 per sf per month, according to the forecast. The current weighted average triple-net asking rate for warehouse and distribution space is around $0.36 per sf per month. By the end of the year, that rate is expected to rise to $0.38 per sf.

Local Grubb & Ellis executive Bradford Fletcher tells GlobeSt.com that a major factor affecting new construction is a lack of fully entitled industrial land. The lack of choices is raising land prices, and that combined with rising construction costs has developers waiting on the sidelines for asking rates to justify new construction. If leasing momentum continues and vacancy keeps falling, multiple new projects could be under way by the end of 2007.

The lack of readily developable industrial sites will result in developers having to get creative, which will raise the cost of preparing the sites, which in turn will raise the cost of the building-ready lots. What had been in the $4-plus to $5 per sf range will rise to between $5 and $7.50 per sf depending on size and location within the market.

"We're already starting to see it in the Sunset Corridor [west of Portland], which has probably one of the best land supplies in the region," says Fletcher. "We've seen the market dip by as much as $1 per sf per year, but now its back, and anybody that needed to sell did; we're now seeing prices in the $7 to $8-per-sf range."

Putting things in perspective, Fletcher adds: "It's not high for where we could be; we're still the lowest cost alternative on the West Coast."