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U.S. Industrial Availability Expected To Decline Next Year
BOSTON - The U.S. industrial real estate sector’s national availability rate is expected to drop to 12.5% in 2012, according to new analysis from CBRE Econometric Advisors (CBRE-EA). CBRE-EA forecasts that the industrial availability rate will continue to decline through 2013, ending that year at 11.3%.
The national industrial availability rate peaked at 14.6% in Q2 2010 and was13.7% in Q3 2011.
“Demand for industrial space in Q3 was the strongest it has been since the end of 2007 and availability should steadily decline next year, helped by a near-record low level of new construction,” said Jared Sullivan, Economist, CBRE-EA.
CBRE-EA reports that many markets are reporting a flight to quality as tenants take advantage of low rents to upgrade to larger, higher quality space. At the same time, industrial demand drivers remain positive, with export growth hitting an all time high during the third quarter. Firms are still expanding inventories, although at a slower pace, and industrial production continues to recover, driven by strong foreign demand for domestically made products.
CBRE-EA projects that industrial rents will rise next year by 2.4%. In 2013, fueled by more solid economic growth and a more normal availability rate level, rents should increase by 5.8%. Construction will be limited in the near term as current rent levels are not supporting speculative construction in most markets. The lack of new construction will continue to drive down the availability rate nationally, a trend which should accelerate in 2012 and 2013 as demand grows faster than supply for the next several years.
Some markets are reporting shortages in prime space. For example, Riverside (CA) is reporting availability rates for buildings over 500,000 sq. ft. at 5% compared to a market average of 12.1%. CBRE-EA projects that markets with significant declines in availability next year will be Oakland, with almost no construction in the next 12 months; Chicago, where construction will be well below trend coupled with a strong bounce back in demand; and Philadelphia. The strongest rent performers over the next year are forecast to be Riverside (CA), recovering from a major rent decline during the recession; Los Angeles, which will benefit from robust trade flows; and Indianapolis, which will benefit from strong exports and a resurging automotive sector.
“Rent growth should turn positive and stay positive in most markets over the next year as minimal construction and expanding demand will continue to drive down availability rates,” added Mr. Sullivan. “However, slowing economic growth, or an outright contraction in inventories, would spell weakness for industrial demand in the future.”
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