The following article, by Robert McGrath at CBRE, predicts lower availability as demand rises for large distribution facilities since Q1 of 2010. We strongly agree with his position; in fact, we have begun to see a rebound in rental rates in the Inland Empire, CA.
Friday, September 17, 2010 – Boston – September 17, 2010—The U.S. industrial real estate sector’s national availability1 rate should peak at 14.2% by the end of September (3Q 2010) before falling to 14.0% in the fourth quarter of 2010 and continuing a slow descent into the first half of next year, according to new analysis from CBRE Econometric Advisors (CBRE-EA). CBRE-EA forecasts the industrial availability rate to decline to 13.4% by 3Q 2011.
“The path to recovery in the industrial sector remains slow; however, after 11 straight quarters of increases, a decline in national availability later this year will be a welcome development,” said Luciana Suran, Economist, CBRE-EA. “A few large, distribution-related markets began to see lower availability in 2Q 2010 and we expect improving fundamentals to steadily spread to other markets.”
Despite the tempering of availability, however, CBRE-EA expects rent declines to continue in most industrial markets, given the historically high level of available industrial space.
However, as a result of the consolidation of supply chains, the demand for large distribution-related facilities—i.e. greater than 400,000 sq. ft. — has grown during the past few quarters. For example, in Indianapolis, availability for these buildings is down more than 200 basis points (bps) from its peak and asking rent growth has actually returned while in Memphis there’s been no new construction of this type of space for six quarters which bodes well for rental recovery there.
Markets with a strong technology sector—such as Austin and San Jose—have also seen their availability rates decline more quickly than other regions. In addition, availability rates for markets with major air cargo facilities have been falling as factors such as tighter inventory management drive increased air freight traffic. For example, Dallas’ large Foreign Trade Zone aided that market’s steady demand for air cargo space.
Another encouraging development has been stable or declining industrial availability recently in some markets at the center of the housing crisis, including areas in Florida and California. Only one California market—Sacramento—experienced increased availability in 2Q 2010.
During 2Q 2010, industrial availability increased in 30 of the 61 national markets, declined in 22, and remained unchanged in nine.
To speak with Ms. Suran or another CBRE-EA expert, please contact Robert McGrath (212.984.8267 or Robert.McGrath@cbre.com)
1 Availability is space that is actively being marketed and available for tenant build-out within twelve months.