"Growing demand for goods from consumers and businesses is propelling the industrial sector into its most positive state since before the Great Recession," noted John Morris, leader of Industrial Services for the Americas. "Manufacturing production and shipments are increasing at a healthy pace, as are imports and exports. Real estate demand has responded accordingly, resulting in a very good year for our industry."
Industrial leasing activity was up 6.2 percent year over year. Greater Los Angeles continued to lead the nation, with 35.8 million square feet in activity, followed by Chicago with 30.9 million square feet. Seventeen of the 37 markets tracked by Cushman & Wakefield reported increased activity in 2013. Fourteen of these markets posted double-digit annual increases. Northern New Jersey posted an impressive 40.0 percent increase, while the PA I-81/I-78 Corridor recorded a 30.0 percent year-over-year increase.
Additionally, net demand is up 23 percent from last year, with only one out of 37 markets tracked recording negative absorption. Dallas/Fort Worth led the nation with 15.1 million square feet of occupancy gains in 2013, followed by the Inland Empire with 12.6 million square feet.
As a result, the U.S. vacancy rate is tightening rapidly. It fell to 7.5 percent in the fourth quarter, down 80 basis points from a year ago and 330 basis points lower than its recent peak in first quarter 2010. "The overall vacancy rate has now declined for 13 consecutive quarters," Morris said. "In the warehouse sector, vacancy has reached its lowest rate in five years, declining for 15 consecutive quarters. Strong demand Class A space has led to its short supply."
The resulting upward pressure on rents brought the average direct asking rate to $5.92 per square foot in the fourth quarter of 2013, a 4.2 percent year-over-year increase. Rents are still 13 percent below their peak level achieved in 2008, but they have been inching up slowly since second quarter 2011.
Ultimately, these positive fundamentals have sparked a new wave of development. As the year came to a close, 79.4 million square feet of new industrial space was under construction, up 87 percent compared to year-end 2012. New development is particularly strong in Inland Empire, Chicago, Dallas/Fort Worth, Houston, Central New Jersey and the PA I-81/I-78 Distribution Corridor. Each of these markets has 4 million square feet or more under construction.
"Ecommerce continues to drive demand for modern logistics facilities,"
Morris anticipates continued progress in 2014. "Less fiscal drag and reduced uncertainty should lead to stronger economic growth this year," he said. "Considering that demand for industrial space has been consistently strong through the economic resurgence so far, it should remain so as the recovery becomes more robust."
Lowest National Industrial Vacancy Rates
1. Orange County, Calif.
2. Oakland, Calif.
3. SF Peninsula, Calif.
4. Greater Los Angeles
5. Denver, Co.
6. Lakeland, Fla.
7. St. Petersburg/Clearwater, Fla.
8. Philadelphia, Pa.
9. Inland Empire, Calif.
10. Portland, Ore.
NATIONAL AVERAGE 7.5% -0.8
* Indicates change in "percentage points" from prior year (not percent).