Industrial Real Estate Succumbs to Sluggish Economy | Facility Executive - Creating Intelligent Buildings

Industrial absorption was negative during the October through December period, with occupied space shrinking by 18.1 million square feet (msf). This marked the largest such decline since early 2002.


https://facilityexecutive.com/2009/02/industrial-real-estate-succumbs-to-sluggish-economy/
Industrial absorption was negative during the October through December period, with occupied space shrinking by 18.1 million square feet (msf). This marked the largest such decline since early 2002.
Facebooktwittergoogle_plusredditpinterestlinkedintumblrmail

Industrial Real Estate Succumbs to Sluggish Economy

Industrial Real Estate Succumbs to Sluggish Economy | Facility Executive - Creating Intelligent Buildings


[Photo: Warehouse 727]

Reflecting the troubled U.S. economy and recessionary conditions, the national warehouse market struggled during Q4’08, according to the fourth quarter industrial report from Colliers International, a leading global real estate services firm. Industrial absorption was negative during the October through December period, with occupied space shrinking by 18.1 million square feet (msf). This marked the largest such decline since early 2002.

A confluence of factors – including an increase in delivery of new industrial construction and softened demand for warehouse space – led to a rise in industrial vacancies, which jumped from 8.67% at the end of Q3’08 to 9.06% at the end of Q4. Compared to one year ago, warehouse vacancies are up from 7.90% to the current 9.06%. Market polling results indicated 42 markets reported an increase in vacant industrial space, and only 12 markets showed declining vacancy in 2008.

In terms of new supply, 46.5 msf was completed during Q4 – which was the highest quarterly injection seen in 2008. This brought full year construction to 171.9 msf – compared to 181.2 msf in 2007.

As for Q4 rents, the average warehouse rental rate registered $5.51 per square foot (psf), which was down 1.5% from the third quarter average, and down 3.3% from the year-ago period. Notably, sizeable rent decreases were witnessed in nearly all California, Arizona, Nevada, and Florida markets.

With tightening lending conditions and the anticipation of further demand weakening, builders largely ceased new construction in Q4. Indeed, only 66 msf stood under construction as 2008 drew to a close, compared with 107 msf at the end of Q3’08. Construction activity is at its lowest level since Q2 2004.

This cessation of construction will lead to a much slower growth in industrial inventory in 2009. Only 75 msf is expected to come online for the whole of 2009 – a major drop-off from the 172 msf brought to market in 2008. Indeed, the January ISM (Institute for Supply Management) number coming in at 35.6 truly sets the tone for a grim year ahead for manufacturing.

“Clearly, we’re in the midst of a deepening recession, which continues to take its toll on the industrial sector,” remarked Ross Moore, executive vice president and director of market & economic research at Colliers International. “While the consumer has been in retreat for the past several quarters, the export sector – which up until recently had been a bright spot – is now experiencing the downward trajectory that’s been felt for quite some time in other areas of the economy. That said, the promise of a significant uptick in infrastructure spending, as mandated by the Obama administration, could provide a much needed jolt for the warehouse market.”

Suggested Links:

You Might Like:

1 COMMENT

  1. Great Article-thank you!
    Slowly but surely, the US economy is emerging from its recession. Home and business owners who have put off maintenance and improvements during the recession will find those costs increasing as the construction industry recovers. Those who spend more freely and invest more liberally into their property will see a higher value for those improvements both in the curb appeal of their home or business, as well as a better likelihood of selling or leasing.

LEAVE A REPLY