The overall vacancy rate of space in warehouses and distribution centers across the U.S. declined to 9.3 percent at the end of the second quarter from 9.6 percent in the first quarter, as demand picked up around the country’s ocean ports and inland ports, according to Cushman & Wakefield.
“Although that doesn’t sound like much, keep in mind that we are a 12-billion-square-foot industrial market place, so it doesn’t take much for that needle to move,” said Jim Dieter, head of Cushman & Wakefield’s industrial real estate platform. “That’s the lowest level of vacancy that we’ve seen since the fourth quarter of 2008. It is a dramatic sign.”
The improvement in the industrial real estate market is partly due to the nascent recovery of the housing market, which has drawn more imports for the home market, and the continuing growth of U.S. exports.
“Although manufacturing activity has showed a two-month slowdown, I’m optimistic this is not a long-term trend,” Dieter said. “Exports have grown six percent in the first half, on top of a 16 percent growth in the first half of last year.”
Of the 73 industrial markets tracked by Cushman & Wakefield and its partners, 55 recorded year-over-year declines in vacancy.
“Southern California, the largest market in North America, has shown the most leasing activity, followed closely by Chicago, the second largest market,” he said.
“The third market, and the one that is very active for big-box distribution space, is the Central Pennsylvania market, the Lehigh Valley, Allentown, Harrisburg and the I-78 corridor,” Dieter said.
At the end of the second quarter, the Greater Los Angeles market had a vacancy rate of 4.6 percent. Chicago had a 9.4 percent vacancy rate. Central Pennsylvania had a 9.2 percent vacancy rate, down from 11.1 percent year-over-year. “It’s one of the most active markets in the U.S., because of its proximity to the Port of New York and New Jersey and the population centers on the Eastern Seaboard,” Dieter said.
Other improving markets include central New Jersey, Phoenix, Ariz., and the Dallas/Fort Worth area.
“Over the last 18 months or so as we’ve seen more and more absorption take place, the supply of industrial space has lessened so speculative construction is happening, but it can’t replace the supply of space that’s absorbed fast enough, so what’s happening is a nice increase in rental rates in most mega-markets,” Dieter said.
There is no shortage of funding available for new industrial construction. “A fundamental to watch with regards to the health of the market out there is to always look at spec construction because developers don’t build speculative construction unless they feel there is a demand, and lenders don’t lend money unless they feel there is a reasonable expectation of that property being leased,” Dieter said.