October 27, 2011
By Paul Rosta, Senior Editor
Defying the shaky economy, fundamentals in the industrial sector continue to inch upward, according to an analysis published Thursday by Cushman & Wakefield Inc.
Industrial properties have now recorded four consecutive quarters of positive absorption, the report found. The third quarter accounted for nearly half — 30 million square feet — of the 68.3 million square feet of positive absorption so far this year. In 2011, 29 of 33 major industrial markets surveyed have shown positive absorption, the report found. Nationwide, year-to-date leasing activity is up 19.8 percent compared to this time last year on the strength of 227.4 million square feet of leasing, the report found. Third-quarter leasing totaled 86.2 million square feet.
Results in other areas reflected these findings. Twenty-nine of the 33 markets posted a decline in vacancy from the second to third quarters. Vacancy at industrial properties slipped to 9.4 percent during the third quarter, a decline of 0.3 percent since mid-year. Even more compelling, vacancy has dropped 1.2 percent year-over-year since the third quarter of 2010.
The most improved markets in terms of vacancy rates were Southern California’s Inland Empire, which posted a decline of 11.7 percent to 9.1 percent during the quarter; the Interstate 81/Interstate 78 corridor of Pennsylvania, where vacancy dropped from 13.6 percent to 10.4 percent; the Tampa market, which recorded an improvement from 9.6 percent to 7.3 percent; and the San Francisco Peninsula, where the industrial vacancy rate fell from 8.8 percent to 6.5 percent.
One impact of these trends on supply/demand dynamics is that “there’s going to be an acute shortage of big-box supply,” Jim Dieter, executive vice president and head of U.S. Industrial Brokerage for Cushman & Wakefield, told Commercial Property Executive this week. In top-tier industrial markets like Atlanta, New Jersey, Dallas and Southern California, product in the 500,000-square-foot and up category is becoming harder for tenants to secure, Dieter added.
By geography, Greater Los Angeles’ 4.8 percent vacancy rate earned top honors as the nation’s tightest industrial market. Rounding out the top 10 markets posting the lowest vacancy rates for the third quarter were Lakeland, Fla.; Orange County, Calif.; the San Francisco peninsula; Portland, Ore.; St. Petersburg/Clearwater, Fla.; Philadelphia; Tampa; Denver and Miami.
A broad-based increase in leasing volume offers yet another strong metric. Year-over-year leasing activity rose in 23 out of 33 markets through the third quarter. Taking first place was the Inland Empire, which tallied a 7.4 million-square-foot increase, considerably ahead of second-place Chicago’s 5.3 million square feet uptick. The Dallas/Fort Worth and Central New Jersey ended the third quarter in a virtual dead heat, each notching 4.7 million-square-foot year-to-date increase in leasing activity compared to the same time last year.