One of the nation’s top real estate firms says the United States’ industrial real estate market continued major growth in the second quarter, but noted this growth is more responsible and less speculative than the pre-recession boom.
Commercial real estate firm JLL released its quarterly report this week, saying the U.S. is on pace to add 135 million square feet in industrial real estate this year, just under 2004’s total. Vacancy rates across the country are down and average rents are rising, a trend that has continued for nearly two years now.
“Today’s big question is when the music will stop,” JLL said. “That is, when the rents will peak or experience a correction amidst new speculative deliveries. Not anytime soon is the answer. Developers are far more disciplined than the prior cycle and speculative development has only recently taken on a proportion more in line with a healthy real estate market in relation to pre-committal activity.”
Construction levels are still well below historical averages, JLL said. Of the 121.3 million square feet currently under construction, 43.1 percent is pre-leased. Demand is up for for smaller projects, totaling between 100,000 and 250,000 square feet, JLL said.
The industrial development numbers include both factory space and distribution centers, although distribution centers make up roughly 75 percent of the industrial real estate market. JLL measures commercial real estate growth in 48 markets.
Completed projects were up 21.8 percent from the first quarter at over 33 million square feet. The square footage completed was 92.2 percent higher than in the second quarter of 2013. The Inland Empire saw the most completions in the first half, with a total of over 14 million square feet completed and ready for the market since January.
Industrial real estate under construction also continued to increase. Construction projects in Dallas/Fort Worth eclipsed projects in the Inland Empire in the second quarter, but both markets have a total of 31 million square feet under construction.
The overall vacancy rate in the U.S. slid yet again, landing at 7.3 percent for the second quarter. The New York City area continued to have the lowest space availability at 1.3 percent, followed by the Los Angeles market at 4 percent.
Average asking rent continued to climb, reaching $4.62 per square foot, 4 percent higher than the second quarter of 2013. Average rent topped $18 in New York City; rents on Long Island, New York, and in California’s Silicon Valley averaged over $10 per square foot. Rents in Denver, Seattle and Los Angeles rose more than 10 percent above their level in the second quarter of 2013.