U.S. Industrial Real Estate Market Enjoying a Resurgence in Late 2012
Posted by Hortense Leon
The industrial real estate market is making a comeback. Net demand for warehouse space was 40.8 million square feet in fourth quarter 2012, making it the second strongest quarter since record-keeping began in 1993 at Cassidy Turley, a commercial real estate company with offices around the US.
Industrial vacancies are tightening quickly, according to a report by Cassidy Turley. In the fourth quarter, vacancies declined by 20 basis points from the previous quarter to 8.9%. The national industrial vacancy rate was at its lowest point in three years in the fourth quarter of 2012. For certain product, such as big box distribution centers, the vacancy rate was below 4% in some locations, according to Cassidy Turley. With vacancies quickly eroding, it won’t be long before rents escalate, according to the report.
The strongest demand for industrial real estate was in the Midwest and South, regions that accounted for 75% of the absorption in the fourth quarter, according to the Cassidy Turley report.
One of the biggest success stories over the last six to eight months has been the resurgence of the industrial real estate market in Indianapolis, where the vacancy rate was at an historical low for multi-tenant space, 3.3%, in fourth quarter 2012, according to Jason Tolliver, vice president of research at Cassidy Turley in Indianapolis.
About 3.2 million square feet of spec building is going on right now in the Indianapolis metro, says Tolliver, “a positive harbinger for the market, especially compared to four or five years ago.” The area is centrally located and has a vast network of interstate highways, so lots of shipping is done by truck and through Indianapolis’ international airport, says Tolliver. Indianapolis has the second largest FedEx hub, after Memphis, in the country, he says. In general, the Midwest is doing well, says Tolliver, partially because of the resurrection of manufacturing, and the rebound of the housing market.
The south is also benefitting from the recovery in the economy. “There is no question that the industrial market is active, especially in the Airport West and Medley markets,” which are the most desirable submarkets in Miami and are the closest to Miami International Airport, says Michael Silver, first vice president at CBRE in Miami. “The vacancy factor dropped from 8% to 6% in the second half of last year and rental rates have climbed, depending on location and the size of the building, by 10% to 20% and sales prices have climbed as well,” he says, noting that he is only talking about the more modern submarkets, like Airport West.
In Airport West, rental rates were about $7.50 to $8 per square foot gross in the first half of 2012, but in fourth quarter 2012 and today, the average rental rate is $8.50 to $9 per square foot gross,” says Silver…
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