Report: Industrial Property Market to Strengthen

Report: Industrial Property Market to Strengthen

Warehouses and distribution centers will see gradual declines in vacancies and small increases in lease rates during the next year, especially in markets near ports and transportation hubs, according to a report by the Grubb & Ellis real estate firm.

“With the weak dollar expected to boost exports and stronger consumer spending spurring imports, landlords are expected to see increased activity and demand for space,” the report said.

The national industrial vacancy rate, which peaked in the first quarter of 2010 at 10.9 percent and ended the year at 10.5 percent, is expected to decline gradually to 10.1 percent by the end of 2011 and 9.3 percent by the end of 2012.

By The Numbers: U.S. Trade.

“Net absorption of 60 million square feet in 2011 and 120 million square feet in 2012, combined with minimal new construction, will propel the expected tightening in the market,” the report said.

The increases are expected to fall short of the pre-recession levels of 2005 to 2007, when annual absorption ranged from 173 million to 192 million square feet a year. “As a result, landlords will not have much pricing power over the next two years, with the notable exception of supply-constrained markets near major port and transportation facilities,” the report said.

Average asking rental rates for warehouse space were $4.26 per square foot annually at the end of 2010, down 13 percent from the cyclical peak of $4.90 in the first quarter of 2010. Grubb & Ellis expects average rates to inch up to $4.30 per square foot by the end of 2011 and $4.35 by the end of 2012.

The strongest markets will continue to be locations close to ports or inland hubs. Grubb & Ellis listed the top 10 markets for industrial investment opportunity as Houston, Los Angeles, Oakland/East Bay, Calif., Dallas-Fort-Worth, Riverside/Inland Empire, Calif., Chicago, Atlanta, Portland, Ore., and Miami.

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