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V O L . X X I V N O. X V I 92 FA C T BO O K / D O I N G B U S I N E S S I N M A I N E W ith vacancy rates for indus- trial real estate sinking to historic lows across the country, you might think sparsely developed Maine would attract ware- houses and factories the way lobster rolls attract tourists. But businesses are discovering the state is not immune to the epidemic shortage of industrial space. Businesses searching for industrial space in southern Maine may need to adjust their expectations, according to Justin Lamontagne, a Portland-based broker with NAI e Dunham Group and an expert who is regularly called on to speak at the annual Maine Real Estate & Development Association. "I don't see any signs [of the short- age] changing there, at least in the foreseeable future," he says. Businesses should try to be more fl exible about the type and location of property they seek, and anticipate a window of at six to eight months before fi nding it … We need to be far more patient." e prognosis isn't all bad, but you have to know where to look, and how. Critical signs Nationwide, the industrial vacancy rate fell to an all-time low of 5% dur- ing the last quarter of 2017, according to Chicago-based research fi rm JLL. at's down from 5.2% in the previ- ous quarter. In major markets like Los Angeles, rates were as low as 3%. In southern Maine, available space is even scarcer. e Portland- Biddeford-Saco region is home to nearly 19 million square feet of indus- trial space, but only 1.25% of that total was vacant in December 2017, accord- ing to an annual survey by NAI e Dunham Group. e cities of Portland, South Portland and Westbrook each recorded a rate between 0.6% and 1.6%. In Gorham, there were no vacancies; 930,000 square feet of space was com- pletely occupied. Businesses fortunate enough to fi nd an industrial property may be dismayed by its price tag. Lease costs in greater Portland soared to nearly $7 per square foot in 2017, the survey found, up $1 from the average rent in 2016. at's the largest increase in industrial rents for the area in over 40 years, accord- ing to the survey analysis. Nationally, the average climbed slightly to $5.50, according to the JLL data. Buying is no better. Sale prices jumped $5 a square foot, to $60, from 2016. Sales prices have increased 50% since 2011. Some spaces are fetching as much as $80 per square foot. And while the higher pricing led to 200,000 square feet of new construction in 2017, most of it was quickly absorbed. In fact, by January, barely 10% of the new space was available. The downside of demand Depending on your perspective, the surging rents and sale prices can be a fi nancial windfall or a drain on profi t- ability. But they may have another impact that is potentially more sweep- ing — and dangerous. " is is an economic development crisis," says Lamontagne. "Without respite, southern Maine cannot compete for new business or support our own unless we can dramatically correct the scarcity of industrial real estate." A combination of causes account for the crisis. Municipal zoning makes new industrial properties "very rare or hard to fi nd," he says, and can limit the reuse of exist- ing ones. Maine's geography and transportation infrastructure limit prospects for development further. And increasingly numerous craft breweries and marijuana cultiva- tors have swallowed up much of the available inventory. However, Lamontagne points out that the demand from recreational marijuana producers has cooled a bit recently, as the legal status of the industry remains in limbo. "We've done virtually no transactions there in 18 months," he says. Corridors of opportunity With industrial space in demand, businesses get creative B y B y W i l l i a M H a l l I N F R A S T R U C T U R E / D I S T R I B U T I O N P H O T O / C O U R T E S Y O F M O D U L A One company staying put is Modula, a manufacturer of automated storage systems for factories and warehouses. Modula opened its own 102,000-square-foot factory in 2015 at Lewiston's Turnpike Industrial Park. The next year, it leased 18,000 square feet of additional space nearby, and then replaced it with a larger leased facility in September 2017.