Vacancy rate for US industrial real estate at lowest level since 2001

16 Aug, 2006, Frankfurt

The vacancy rate for industrial real estate in the USA is at the lowest level for almost five years. According to information provided by Cushman & Wakefield (C&W), vacancies were at 7.7% in the second quarter of this year (the last time a lower rate was recorded was 7.5% in the third quarter of 2001). Over the last twelve months, vacancy levels have fallen in 26 of the 30 most important industrial locations in the US. According to Peter Quinn, Senior Managing Director for Industrial Services at C&W, the decrease in vacancy rates, "can be traced back to increased confidence in a national economic recovery. Despite all the forecasts that industrial production would enter a period of decline, the industrial sector has proved to be extremely stable." The lowest vacancy rate for industrial space (2.4%) was recorded in southern California where the market has benefited from the harbours in Los Angeles and from Long Beach.

This effect was supplemented by increased absorption during the first half of this year, leading to a recorded yearly performance of 4 million m² absorption – an increase of 7.5% compared to the 3.7 million m² in the middle of the previous year. The highest absorption was in Chicago (1.1 million m²), Inland Empire (641,000 m²), Dallas (418,000 m²), Atlanta (334,500 m²) and northern New Jersey (288,000 m²).

Against this background of reduced vacancy rates, the leasing market developed more slowly in the first half of 2006. Approximately 14.3 million m² of industrial space has been leased since the start of the year. The most successful markets were Los Angeles and Chicago, which experienced a growth of 306,600 m² and 288,000 m² respectively.

By midyear, construction of over 5.9 million m² of new industrial space had been completed, with 44% of the new space in Chicago, Inland Empire and Atlanta. Project developers reacted to the improved basic market data speculatively by bringing an additional 3.6 million m² onto the market in the first six months of 2006, resulting in an increase of 32.3% in speculatively developed industrial space compared to the middle of the previous year. 7.3 million m² of industrial space is currently under construction, of which 1.5 million m² has been leased in advance over the first half of the year.

In the first half of the year, the US investment market for industrial space was 17% higher than the level for the previous year. The investment volume consisted of 8.9 million m² of industrial space, led by Chicago with 1.9 Mio. m² and Silicon Valley, which recorded an increase of approx. 985,000 m² with a total of 1.2 million m² changing owners, followed by Inland Empire and Houston in third place with approx. 440,000 m² each.

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