With Manufacturing Uptick, Industrial Breathes Sigh of Relief

Fundamentals Provide Reason for Optimism Heading into Final Weeks of 2012 By Jim Dieter, SIOR, executive vice president, Industrial Brokerage, U.S. Cushman & Wakefield, Inc.
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Nov. 15, 2012 - PRLog -- The industrial sector is breathing a collective sigh of relief amidst reports that manufacturing - one of the most important components of a growing industrial landscape - expanded in both September and October after three months of slight contraction. The stall followed consistent growth over more than two years and certainly caused concern, as manufacturing impacts almost every facet of our sector, from jobs, to real estate, to transportation. It now appears to have been just a minor bump in the road.
Other positive indicators heading into the final weeks of 2012 provide reason for continued, albeit cautious, optimism about the health of the United States industrial market. The overall vacancy rate fell to 9.0 percent during the third quarter, down 30 basis points from mid-year and down 110 basis points from this time last year. The Greater Los Angeles market posted the lowest vacancy rate in the nation, at 4.5 percent.

Tenants leased 306.8 million square feet through the first nine months of 2012. While this number is down 6.7 percent from last year's highly robust level, a number of key submarkets continue to gain momentum. For example, the Pennsylvania I-81/I-78 distribution corridor, with 7.8 million square feet in transactions year to date, is up an incredible 68.6 percent year over year. The Greater Los Angeles region tops the nation in leasing volume, with 28.3 million square feet of closed transactions, followed closely by Chicago, with 25.3 million square feet.

Additionally, the third quarter saw 15 lease commitments greater than 480,000 square feet nationwide. Eight of these projects involved more than 1 million square feet of space. Among them, Home Depot, Unilever, Dollar General and Amazon.com signed on for build-to-suit distribution facilities. Importantly, available Class A industrial space remains limited in the face of this growing big-box demand. As such, we are beginning to see moderate rental rate increases for modern, functional product in tier one markets.

Interestingly, even through construction volume has increased significantly, demand still outstrips supply. In 2011, 29.6 million square feet of industrial space was added to the market nationally. So far this year, 31.8 million square feet of new space has come online, including 15.3 million square feet of speculative projects. An additional 58.9 million square feet currently is under development.

As we move quickly toward 2013, we are keeping an eye on two positive trends. First, the housing recovery is helping to boost the economy. Sales of new homes in September jumped to the highest level in more than two years. Additionally, consumer confidence rose to a seven-month high, and retail sales advanced 1.1 percent in September. Certainly, these changes are not dramatic, but they are headed in the right direction.

Still, issues like the impending fiscal cliff, domestic and European debt issues, and global geopolitical conditions continue to weigh on the United States economy. Business and consumers remain risk averse and hesitant to spend unless necessary. So while we are growing, we are growing cautiously, and we do not anticipate a significant shift until conditions become more settled.
Source:Cushman & Wakefield National Industrial
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Location:Rosemont - Illinois - United States
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