Positive Outlook for U.S. Industrial Real Estate Through 2013

-Mid-Year Stats Released by Cushman & Wakefield, Inc. Reflect Healthy Trending

The industrial real estate market, and the industrial service line at Cushman & Wakefield, Inc., performed well during the first half of 2013, highlighted by year-over-year increases in transaction volume and revenue in many markets, and a widely sustained positive outlook for the balance of 2013, according to Cushman & Wakefield’s John Morris, leader of Industrial Services for the Americas. The commercial real estate services firm’s mid-year statistics released today reflect this positive trending.

U.S. industrial leasing volume increased during the second quarter of 2013 after three consecutive quarters of decline. Twelve out of 37 markets tracked by Cushman & Wakefield reported stepped-up activity year over year. Nine of these markets posted double-digit annual increases, led by Northern New Jersey (with a 29.5 percent increase) and the Inland Empire (with a 15.4 percent increase). Greater Los Angeles continued to lead the nation in leasing activity with 17.9 million square feet, followed by Chicago with 16.4 million square feet – despite both markets posing decreased leasing velocity year over year.

“Retail, wholesale, e-commerce and logistics requirements are driving demand in many of the nation’s major industrial hubs,” Morris noted. “In Houston, however, the energy industry accounted for a bulk of the leases signed in the last 18 months. Overall, Class A space continues to disappear in many markets as tenant demand remains steady. With quality options dwindling, both speculative and build-to-suit construction have gained some momentum in a number of markets."

New industrial construction completions totaled 19.7 million square feet at mid-year, including 12.5 million square feet of speculative development. An additional 21.8 million square feet of spec projects are scheduled to be completed by year-end. Recent leases by Procter & Gamble, Amazon.com, Home Depot, PepsiCo, Inc., Unilever, Crayola and PetSmart reflect continued robust build-to-suit demand as well.

“Even with increased construction, steady demand has kept vacancies low in most major markets,” Morris said. “The overall industrial vacancy rate fell to 8.0 percent during the second quarter, down 70 basis points from a year ago and 280 basis points lower from its recent peak during the first quarter of 2010.”

The lowest overall industrial vacancy rates at mid-year 2013 were recorded in Greater Los Angeles (4.4 percent), Orange County, Calif. (4.4 percent) and Lakeland, Fla. (4.3 percent). Four out of 37 markets tracked by Cushman & Wakefield reported larger year-over-year vacancy rate decreases, exceeding 2.0 percentage, including Boston (4.3 percentage points), San Francisco North Bay (3.2 percentage points), Orlando, Fla. (2.5 percentage points) and Contra Costa, Calif. (2.2 percentage points).

Improved market fundamentals have pushed rents slowly in a positive direction. Direct weighted average triple net rental rates have been trending up steadily, from $5.63 per square foot at mid-year 2012 to $5.79 per square foot today.

Additionally, net demand is up 20 percent year over year, with 34 of the 37 markets tracked by Cushman & Wakefield recording occupancy gains. The Inland Empire is leading the nation with 5.1 million square feet of absorption, followed by Chicago with 5.0 million square feet.

“This represents 13 consecutive quarters of positive absorption, with Class A properties in seaport markets and inland hubs seeing the strongest demand,” Morris said. “Supply growth in the U.S. is still muted overall, and where development is occurring much of the space is being absorbed. Generally speaking, the U.S. industrial market has performed well consistently since the recovery took hold. Even against a backdrop of relatively slow economic growth, we expect the sector to continue on a strong note during the second half of 2013.”