Industrial Market: Clear Signs of Recovery

Published by Lance Mohr | Filed under Market Update

Coinciding with a noticeably improved United States office market, the national industrial property sector absorbed 28.6 million square feet of space during the fourth quarter of 2010, propelling what had been a net loss for the year into a solid gain, according to quarterly research on the U.S. industrial market from Colliers International Q4 2010 North America Industrial Highlights. According to Colliers, the growth likely heralds the beginning of the next up cycle for the industrial sector as demand for warehouse space – fueled by an increase in import and export activity and an improving consumer appetite for goods – is expected to rise.

A handful of markets  – including Charleston, Cincinnati, Dallas-Ft. Worth, Inland Empire, Little Rock, New Jersey, Philadelphia, Phoenix and Savannah – saw a substantial jump in occupied space relative to their size and contributed nearly 70 percent of total occupancy gains. Because the sizable growth can be attributed to on a few markets, however, Colliers says expectations should still be tempered until the turnaround expands into additional markets.

Despite sizeable gains in net absorption, average asking rents for industrial space on a national basis declined slightly to $4.60 per square foot.

“The good news is that rising demand for space, coupled with minimal new construction and an overall vacancy rate that dropped to 10.74 percent (with further expected declines) position the national industrial sector for a strong 2011,” Colliers International said in a release.

Report overview

• The overall industrial market registered an increase in occupied space for each of the past three quarters. And though approximately five million square feet was returned to the market through Q3 2010, by year-end, 23.7 million square feet of inventory had been absorbed thanks to a robust fourth quarter.

• Net absorption refers to the amount of space occupied at the end of a period minus the amount occupied at the beginning, and the 2010 numbers show a marked change from one year earlier. In 2009, the year ended with 160.7 million square feet returned to the market.

• Colliers projects that 50 million square feet of quarterly absorption is well within reach for 2011. And if GDP (gross domestic product) improves by three percent this year, as some economists predict, the industrial market could generate as much as 200 million square feet of positive absorption for the year.

“The national industrial market has made a significant rebound and is positioned to meet, and possibly exceed, growth expectations in 2011,” says Dylan Taylor, chief executive officer for Colliers International in the U.S. “The fundamentals continue to improve, and barring any unforeseen events, we are confident that the industrial sector will have an extremely positive year.”

“Manufacturing, along with consumer spending, is going to be a key element of the overall national recovery, with almost all economic indicators suggesting that warehouse space demand will only increase in 2011,” says Ross Moore, chief economist at Colliers International. “The turnaround presents an opportune time for tenants to sign new leases, as 2012 will likely witness the inflection point at which industrial space rents begin to march upwards.”

Colliers International has posted the full research report on its website.

© 2011 Florida Realtors®

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