DPI co-founder Jeff Davis, who expects to announce several more significant real estate deals in the coming months, agrees with Aigner's assessment, noting, "We think there's still a tremendous upside to many of these smaller industrial-based markets along the I-5 corridor. We remain bullish on these sub-markets, as well as the flex product that works so well for today's small-to-medium-size tenant."

According to CB Richard Ellis, the overall market has one of the lowest vacancy levels in the nation at 5.44% for the end of 2007, down from more than 7% a year earlier. The brokerage pegs monthly lease rates at $0.49 a sf.

"There's tremendous demand for small tenant spaces. We're actually seeing a rise in rental rates on smaller buildings," Alan tells GlobeSt.com. "But larger buildings are having a tougher time. A number of recently completed larger buildings sold vacant to Black Rock, ING Clarion and LaSalle and still haven't found tenants."

According to Aigner, Harsch pays cash for all its investments and thus worries little about the credit market. It prefers longer holds over quick turnarounds and is willing to pay the higher management costs of serving smaller tenants in order to build a loyal tenant base. He says the company also strives to build strong broker relationships, which is how it was able to defy the inventory shortage and acquire the DPI property in an off-market transaction. With so few properties on the block, Alan says off-market deals seem to be becoming the norm.

Both Aigner and Alan believe cap rates are creeping up a bit as pricing retreats from peaks reached in early '07. "We're seeing some sellers trying to hold to prices from six months ago," says the latter. "But more what's happening is owners holding on to properties and reaping the rewards of rising rents, waiting for prices to go up again."