Continued Growth in the Industrial Sector

Vacancy & Spec Construction Back to Pre-Recession Levels

The U.S. economy appears to have finally transitioned to a period of stronger growth that will likely be sustained over the next 12 to 18 months. Job creation was much stronger than expected and the economy added 288,000 jobs in June. U.S. factory output rose for the sixth consecutive month in July and over the past 12 months, manufacturing has risen 4.9%. Similar to the recent positive trends in the broader economy, the U.S. industrial sector also accelerated in the second quarter. Net demand remained strong and is on track to surpass last year’s total, with 95.7 msf of occupancy gains at mid-year. The Midwest region led the way with 22.7 msf of occupancy gains, followed by the West region with 20.9 msf.

Strong occupancy gains and dwindling supply of big-box drove the overall vacancy down to 7.6%, 80 bps lower than a year ago and the lowest level since first quarter 2008. This also represents a significant drop from the recent vacancy high of 11.2% posted during first quarter 2010. The average direct asking rent increased by 3.8% from a year ago to $5.43 per square foot. Meanwhile, the warehouse/distribution sector has now posted seventeen consecutive quarters of declining vacancies.

Totaling 220.7 msf, leasing activity was down 7.4% year over year with only 32.1% of the nation’s industrial markets posting increased leasing. The Greater Los Angeles market continued to lead the nation with 19.3 msf leased (up 2.9%), followed by the Inland Empire with 16.1 msf (up 2.0%). Meanwhile, industrial leasing activity for the Chicago market totaled 16.0 msf, an 8.8% decrease from this time last year. On the East Coast, the New Jersey industrial market remained strong with a 12.2% annual increase in leasing activity, with Central New Jersey posting a 24.8% annual gain. Meanwhile, markets like Orange County, Miami, Phoenix, Oakland, PA I-81/I-78 Distribution Corridor, Louisville and Indianapolis had double-digit percentage declines in leasing velocity.

Demand far outpaces what is currently available in the marketplace, particularly in critical locations. As a result, developers are rushing to bring new product to market with 133.4 msf under development. At mid-year, build-to-suit industrial construction deliveries in the U.S. totaled 29.7 msf, with an additional 43.2 msf anticipated by year end. In terms of spec construction, 89.4 msf of new product is expected to be delivered this year. This the highest level of new spec construction since 2008, although it remains well below that year’s total of 138.4 msf. By the end of the year, new industrial construction will total 162.3 msf – 85.0% higher than last year’s total and the highest since 2008, when 176.4 msf of new inventory was added to the market.

MAJOR U.S. MARKETS -   Inventory, Overall Vacancy, Warehouse Direct Net Annual Rents

MAJOR U.S. MARKETS – Inventory, Overall Vacancy, Warehouse Direct Net Annual Rents

About Cushman & Wakefield/NorthMarq

​Cushman & Wakefield/NorthMarq is a joint venture formed in September 2011 by NorthMarq Real Estate Services and the Minnesota operations of global real estate services firm Cushman & Wakefield. By combining the talent of both organizations at the regional level with the global platform of Cushman & Wakefield, we offer clients the best combination of regional strength and global capabilities. The result: the leading commercial real estate firm by all measures in the Upper Midwest.
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