Much like Cd. Juarez, some of the most exciting developments in El Paso in 2007 are the larger macro trends taking place. The expansion of Ft. Bliss, the start of the Texas Tech Medical School, funding of the future international bridge at Fabens and push of the Downtown Revitalization Plan are all bringing positive news to El Paso. While these advances were making headlines, the industrial real estate market turned in one of the best years since the late 1990’s, sustaining growth  that begun in 2005 with the comeback in Cd. Juarez.

            One of the biggest challenges that El Paso continues to face is the trend toward more warehouse operations selecting Cd. Juarez instead of El Paso. Last year alone there were 725,000 SF of space occupied by 3PL’s or manufacturers exclusively for warehouse and distribution uses in Cd. Juarez. In years past most of this activity would have been on the U.S. side of the border, turning a good year for El Paso’s industrial market into a great one.

            In the opening section of this report we highlight how larger logistics changes are impacting Mexico in general, creating new opportunities and opening new markets, but it is still a transformation very much in influx and the long term impact for El Paso’s industrial market remains unclear.

            In the past twelve months there was 3,800,000 SF of total activity across El Paso, making it one of the most active years in the past decade. Like Cd. Juarez, most of the activity came from firms already established in the market, either through expansion, relocations or renewal. This activity resulted in just less than 1,200,000 SF of net absorption, most of which was in the major eastside industrial market, Vista del Sol.

            There were several key vacancies in El Paso last year. These included Yazaki and Cardinal Health in the Butterfield Trail Park, Home Products International in the Northwest Corporate Center (which was leased in November by Copperfield) and Lexmark’s warehouse in the Eastside Industrial Park.

            As of December 31st, industrial vacancy stood at about 9.5%, the lowest number in more than five years. While the only new construction start in the past twelve months was Stein’s facility on Don Haskins, the market has certainly tightened to the point where new construction should occur in 2008. Five Star has announced plans for a 500,000 SF spec distribution center by the Zaragoza Bridge and it is likely that other developers will follow suit. Currently, El Paso’s industrial supply stands at 53,720,000 SF in buildings totaling 30,000 SF and above.

            The largest transaction in El Paso over the past twelve months was Copperfield’s lease of 401,401 SF in the Northwest Corporate Center. This was the same space that Home Products International vacated at the beginning of the year and is an expansion of Copperfield’s existing El Paso operations. Other significant transactions include Excel Logistics (3PL) lease of 200,000 SF in Socorro, Alorica’s (Call Center) lease of 126,000 SF on the eastside, Simply Goodie’s (food products/warehouse) lease of 150,000 SF on Don Haskins and Stag Capital’s (investment) purchase of the two 260,000 SF Yazaki buildings in Butterfield Trail.

            The first half of 2008 should see the continued rise of rental rates as vacancy rates continues to decline. Class “A” warehouse space will average close to $4.00 PSF with Class “B” space climbing to $3.60 PSF. There continues to be a significant amount of available properties between 30,000 and 50,000 SF, but companies are looking for buildings over 100,000 will have trouble unless new product is constructed, especially on the eastside.

Source: CB Richard Ellis, 2007 Year End Market Summary

Updated: April 2008