U.S. Industrial Sees Favorable Conditions with Strong Market Demand

CHICAGO - July 23, 2015 - PRLog -- With 74.5 million square feet of occupancy gains at mid-year, the U.S. industrial market is seeing highly favorable conditions in the face of a continuing – though narrowing – demand/supply imbalance, according to Cushman & Wakefield. The commercial real estate services firm released its mid-year 2015 research findings today.

“Strong industrial fundamentals can be found across the nation, with e-commerce retailers and logistics companies propelling our sector’s progress,” noted John Morris, leader of Cushman & Wakefield’s Industrial Services Group. “As demand recovery has matured, it has become more diversified by size and market.”

Thirty five of the 38 industrial markets tracked by Cushman & Wakefield posted positive absorption during the second quarter. The Inland Empire leads the nation with 12.5 million square feet of occupancy gains year to date, followed by Dallas/Fort Worth with 11.1 million square feet. Atlanta, which has benefitted significantly from increased trade volume at Georgia’s ports, posted net absorption of 6.8 million square feet at mid-year.

Additionally, overall vacancy continued to trend down during the past three months, to a rate of 6.6 percent. This is 60 basis points lower than one year ago and the lowest level since first quarter 2001. Within this context, 17 U.S. industrial markets boast rates lower than the national average. The leaders, all California markets, include San Francisco Peninsula (2.4 percent), Greater Los Angeles (3.0 percent) and Orange County (3.5 percent).

“The significant space absorption during the first six months of the year, coupled with historically low supply, is driving strong rent growth in most major industrial hubs,” Morris noted. “U.S. warehouse rents, at a weighted average of $5.17 per square foot, are up 3.7 percent year-over-year. They are projected to grow five percent by year-end and by more than 10 percent over the next three years.”

New industrial construction completions so far this year totaled 55.8 million square feet, which is 30.2 percent higher than the same period in 2014; speculative construction accounted for 61.8 percent of this volume. The amount of space under construction has increased as well, rising from 103.6 million square feet in the first quarter to 105.7 million square feet today. The Inland Empire is leading the way in new development, with 18.8 million square feet currently under construction, followed by Atlanta with 17.4 million square feet and Dallas/Ft. Worth with 13.1 million square feet.

“Market-level supply pipelines are growing but remain below the pace of demand in most markets,” Morris said. “The resulting shortage of quality space is putting a damper on leasing activity.” Year-to-date U.S. industrial leasing totals 178.9 million square feet, down from 184.3 million at mid-year 2014, with less than half of Cushman & Wakefield-tracked markets posting increased leasing volume.

Notable exceptions include the Inland Empire, where a significant supply of new inventory to help satisfy demand led to a 43.0 percent increase in leasing year over year. Other key markets with double-digit leasing volume gains included Stockton/Tracy, Calif. (58.8 percent), Phoenix (51.5 percent), Philadelphia (49.2 percent), Greater Los Angeles (17.9 percent), San Diego (16.1 percent) and Miami (13.1 percent).

“Looking ahead, the addition of new warehouse supply will be readily met by growing e-commerce-driven demand for quality distribution product,” Morris said. “Through the remainder of 2015 and beyond we expect the current trajectory to drive down vacancy rates even further while pushing up rents accordingly.”

Ten Lowest National Industrial Vacancy Rate Markets

CITY          2Q’15         ANNUAL CHANGE*
1.   SF Peninsula, CA          2.4%          -1.3
2.   Greater Los Angeles, CA      3.0%          -1.0
3.   Orange County, CA          3.5%          -0.4
4.   Denver, CO          3.7%          -0.5
5.   Lakeland, FL          3.8%          -1.3
6.   Oakland, CA          4.4%          -1.5
8.   Portland, OR          5.3%          -0.6
9.   Pennsylvania I-81/I-78          5.4%          -2.2
10. Palm Beach, FL          5.5%          -0.8

NATIONAL AVERAGE          6.6%          -0.6

* Indicates change in “percentage points” from prior year (not percent).