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U.S. Industrial Leasing, Investment Pick Up in 2010
1 Feb, 2011, New York
Cushman & Wakefield today released year-end statistics for the U.S. industrial market that show leasing and investment activity increased notably in 2010, while vacancies began to decline from their peak.
Leasing activity for industrial product totaled 268.8 million square feet in 2010, up 16.5 percent from the 230.8 million square feet leased in 2009. While leasing picked up throughout the year, the fourth quarter proved particularly strong, with 79 million square feet of leasing activity, up from an average of 63.2 million square feet leased during each of the three previous quarters. Twenty-three of the 34 U.S. industrial markets tracked by Cushman & Wakefield recorded increases in leasing activity year-over-year.
Investor appetite for industrial real estate also rebounded during 2010, as 99.9 million square feet of property traded hands, up 64.4 percent from the 60.5 million square feet sold in 2009, and the highest level of industrial investment activity since 2007.
"These types of increases make it apparent that confidence is building on behalf of both users and investors," said Jim Dieter, executive vice president and head of Cushman & Wakefield's National Industrial Services. "Improvements in fundamentals provide a clear picture of recovery for the U.S. industrial market."
Increases in leasing put downward pressure on vacancy rates. The overall vacancy rate for the U.S. industrial market fell to 10.3 percent at year-end 2010, down from 10.6 at the end of the third quarter after reaching a high of 10.8 percent in the first quarter of 2010. Of the 34 U.S. industrial markets tracked by Cushman & Wakefield, 27 experienced declines in vacancy quarter-over-quarter, while two saw no change and five markets had vacancy increase. Markets with the largest decreases in vacancy included the Pennsylvania I-81/I-78 Distribution Corridor (declined from 13.6 percent to 12.0 percent), Palm Beach, Fla. (declined from 9.9 percent to 9.0 percent) and the Inland Empire, Calif. (declined from 11.7 percent to 11.0 percent).
The uptick in leasing activity also boded well for the absorption rate, a measure which indicates the net change in occupied space. Absorption was positive for the first time since the second quarter of 2008, ended 2010 at positive 13.1 million square feet, a major increase from the negative 125.2 million square feet in absorption at the end of 2009.
Industrial construction completions totaled 15.9 million square feet in 2010, down 74.4 percent from the 61.9 million square feet completed in 2009, and the lowest amount of new space added in the course of one year since Cushman & Wakefield began tracking the industrial market. New construction for the year totaled less than one percent of the current U.S. industrial inventory of 8.1 billion square feet. The previous record low for construction was 45.5 million square feet in 1995.
"Positive absorption for the first time in two-and-a-half years is an extremely positive sign for the U.S. industrial market," said Maria Sicola, executive managing director and head of Americas Research for Cushman & Wakefield. "Historically low construction rates will keep supply limited, giving us the possibility of rent increases later this year."
Following ten consecutive quarters of declines, direct net asking rents for U.S. industrial space rose slightly from the previous quarter, ending 2010 at $5.51 per square foot.