The U.S. warehouse market continued its upward trajectory during the third quarter of 2007, but the deceleration noted in the previous quarter became more evident in the July through September period, according to Colliers International, a global real estate services firm.

On a positive note, third quarter industrial vacancies fell 8 basis points quarter-over-quarter, from 8.09 percent in Q2 to 8.01 percent in Q3. This was despite 38.3 million square feet (msf) of new supply added to the market in the third quarter - this, however, was below the 44.2 msf injected during Q2. Year to date, the amount of new supply brought to the market came in at 123.7 msf. Industrial developments under construction increased by 7.7 msf during Q3 - totaling 153.5 msf at the end of the quarter - a significant increase compared to the 121.0 msf registered at the close of the year-ago period.

The market absorbed almost all the new space brought to bear, with Q3 absorption measuring 36.1 msf. This brought YTD absorption to 106.6 msf, 31.1 msf less than the year ago period. "The picture is becoming increasingly clear," remarked Ross Moore, senior vice president and director of market & economic research at Colliers International. "The financial markets continue to display considerable volatility, and there seems to be no end in sight for the ailing housing market. Thus, occupiers of warehouse space have taken a 'wait-and-see' attitude - leading to only modest absorption. With increasing talk of a recession, this scenario is likely to continue - meaning Q4 absorption may yet again disappoint."

In terms of vacancies, all industrial markets under study were stable in Q3, with changes in vacancies limited to between a one percent drop and a one percent increase. Twenty three markets saw vacancies decrease, while 22 saw vacancies go up, and 10 saw vacancy rates hold steady.

Demand drivers show a mixed picture. The October ISM index came in just above the critical "50" level, at 50.9, marking the fourth consecutive monthly decline. However, advance Q3 GDP shows the U.S. economy expanded at a 3.9 percent annual rate, which exceeded Q2 growth as well as most estimates. The global economy is still displaying robust growth, which bolsters the export sector.

All that said, rents for industrial space were marginally higher during the third quarter, with a 0.7 percent increase - bringing the national average to $5.60 per square foot (psf). This marks a 6.4 percent increase from the year-ago period, as at this time last year, rents clocked in at $5.26 psf.