US Industrial Vacancy to Drop to 6.6% to 2015
18 Nov, 2011, New York
Cushman & Wakefield today released its U.S. Industrial Market Forecast through 2015, which shows industrial vacancy rates across the country dropping considerably in the next five years.
The overall vacancy rate for the U.S. Industrial market - which is currently 9.6 percent - is forecast to drop approximately 1.0 percentage point each year beginning in 2012, ultimately falling to 6.6 percent by 2015. Dallas, Phoenix, the Inland Empire, Houston and Silicon Valley stand to see the largest decreases in vacancy over the next five years, with Los Angeles, Portland, Orange County and Miami poised to claim the lowest vacancy rates in the U.S. by 2015.
Little new construction in the pipeline and new leasing activity from rising demand - which is forecast to slow in the near-term but likely to escalate significantly after 2012 - will drive the declines in vacancy.
Average asking rents - which remain depressed throughout the country - are forecast to stabilize and ultimately increase 14.5 percent over the next five years. West Coast industrial markets, including Silicon Valley, the Inland Empire, Oakland, Los Angeles and the San Francisco Peninsula will see the most significant gains in rental rates by 2015.
Demand for warehouse/distribution space is forecast to outstrip supply over the next five years, with a number of markets already experiencing a shortage of class-A distribution space. For this reason, several tenants have pursued build-to-suit developments, and as demand intensifies speculative projects are expected to come online. Overall vacancy is forecast to decline to 6.6 percent in 2015 from the current 9.9 percent. Coastal markets will tighten sooner than inland markets, leading to the strongest five-year rental rate increases in markets including the San Francisco Peninsula, Los Angeles, Oakland and the Inland Empire.
Manufacturing is - and is expected to remain - one of the bright spots of the recovery. By 2015, more than 90 percent of major markets will see measurable declines in manufacturing vacancy, with Phoenix, Dallas, Portland and Atlanta experiencing the largest declines. The majority of producers in the U.S. own their own facilities, so rental rate appreciation for manufacturing facilities will be mixed. West Coast markets with development constraints and higher costs of ownership will see rental rates increase notably, while markets in the South and Southwest with abundant development and strong competitive pricing will see lower rental rate appreciation.
While demand for flex space has fallen significantly over the past decade, increases in areas including scientific research funding, cloud computing, third-party backed office support and domestically-staffed call centers are expected to buoy the segment, with vacancy rates expected to decrease to the high single-digits for the first time since the start of the technology bust in early 2000. The recovery will be modest at first and gradually escalate by 2015, with flex properties in strong locations with transportation access and proximity to targeted employee pools continuing to be favored. Traditional technology hubs like Silicon Valley, Raleigh/Durham and Boston will benefit from the revival, while markets including Dallas, Phoenix and Denver should also see an uptick in demand. New flex construction will be limited over the next few years, amounting to just under 9.3 million square feet, and rental growth should be moderate, with the exception of Northern California, which will see notable rental growth.