“Market fundamentals continue to be strong, driven by a resilient economy, good job creation and a relatively strong housing market.” John Morris, Cushman & Wakefield
(PRWEB) April 27, 2015
A continuing economic recovery, the continued growth of e-commerce, a steady housing market and resurgence in domestic manufacturing all contributed to the lowest vacancy rates in more than a decade for the U.S. industrial market during the first quarter of 2015, according to commercial real estate services firm Cushman & Wakefield. The company’s first quarter results showed an overall vacancy rate of just 6.7 percent.
E-commerce is having the greatest impact on the industrial real estate industry according to John Morris, leader of the real estate firm’s Industrial Services Group. “Market fundamentals continue to be strong, driven by a resilient economy, good job creation and a relatively strong housing market,” Morris noted. “But the biggest requirement stems from the need for facilities to satisfy the continued growth in e-commerce activity.” As a result, retailers are repositioning and adding distribution centers to meet this projected demand.
The California markets of San Francisco Peninsula and Greater Los Angeles boast the lowest vacancy rates in the nation with 2.3% and 3.3%, respectively. The Greater Los Angeles market also leads the nation in leasing with 10.8 million square feet of leased space in the first quarter. The Inland Empire region showed remarkable growth as well with 9.1 million square feet of leasing and 17.7 million square feet under construction.
The national numbers in the first quarter also showed continued improvement in industrial vacancies at 6.7 percent, continuing a five-year improvement trend. “Strong market demand for high-quality space has led to tight supply,” Morris noted. “Even with the influx of new construction, increased demand should further reduce our sector’s vacancy rates in the near term.”
Rents in Industrial Sector Continue to Rise Reflecting Strong Demand
With lower vacancies, rents for warehouse space are also on the rise, a strong 11 percent higher than year-end average in 2011. “We expect rents to rise another 5 percent by year-end 2015, and to increase more than 10 percent over the next three years.
Net demand remained strong at the start of the year with 35.3 million square feet of occupancy gains reported in the first three months of 2015. Dallas/Fort Worth led the nation with 6 million square feet of occupancy increases in the first quarter, followed by the Inland Empire with 3.3 million square feet. Atlanta has benefitted significantly from increased trade volume at Georgia’s ports with net absorption of 3.1 million square feet in the first quarter.
In all but a few markets, absorption continues to surpass construction or new supply, creating a healthy balance between recovering supply and demand. As a result, strong rent growth is taking place in major industrial hubs across the nation, with average direct rents up 3.6 percent nationally from one year ago. Seven out of 38 markets posted double-digit rent gains, and the Northern California markets of Silicon Valley and Oakland led the nation in annual rent growth at 18.3 percent and 14.1 percent, respectively.
Build-to-suit development accounted for the majority of industrial construction activity in 2010 and 2011. But in the past two years, the improving supply and demand ratio has pushed the market for speculative development into high gear. Last year, speculative construction accounted for more than half of what was built, and that has increased further to 71 percent of the space currently under construction in the United States.
“The market ended last year with 105 million square feet under construction and about 340 million square feet leased,” added Morris. “This indicates a marked difference in which demand continues to surpass supply in almost every region.”
Looking ahead, Cushman & Wakefield anticipates that 2015’s industrial real estate market will continue to be driven by fundamental and structural changes. “The industrial real estate market has powered through some turbulent times. What we expect from this year is that even in perhaps a more variable economic market overall, industrial real estate and its market will continue to perform strong,” concluded Morris.