Industrial Real Estate Sees Modest Recovery

Industrial Real Estate Sees Modest Recovery

Industrial property markets are seeing “modest” recovery in line with a gradual strengthening of the economy, real estate investment firm Grubb & Ellis said.

Nationwide vacancy rates for distribution centers and other industrial real estate declined to 10.4 percent in the fourth quarter of 2010 from 10.5 percent in the third quarter. The vacancy rate peaked at 10.9 percent in the first quarter of 2010.

“If the economy continues to recover at a gradual pace this year, which seems likely, the industrial market will extend its modest recovery,” said a report by Bob Bach, senior vice president and chief economist. “Look for the vacancy rate to fall below 10 percent by year end and rental rates to remain broadly stable, with increases expected in a handful of supply-constrained market near major port facilities. Construction activity should pick up very slowly.”

By The Numbers: ISM U.S. New Manufacturing Orders Index Vs. ISM U.S. Manufacturing Inventory index

Grubb & Ellis said net absorption of industrial space rose to 24.2 million square feet in the fourth quarter, the strongest quarterly performance in three years but well below the quarterly average of 44.3 million square feet during the boom years of 2005-2007.

Construction remained near the cyclical low, with just 4.4 million square feet added in the fourth quarter and 12.1 million square feet in the construction backlog.

Asking average rents for all types of industrial space were $5.35 per square foot a year, up 1.7 percent from the third quarter. Rates for available space ended the fourth quarter at $$4.27 for warehouse-distribution space.

Bach said the manufacturing sector “has moved beyond the inventory correction cycle…and is expanding at a decent, sustained clip. Exports, business investment and moderate growth in consumer spending are playing a role.”

-- Contact Joseph Bonney at jbonney@joc.com.