Industrial Vacancy Rate Declines Over The Last 12 Months
8 May, 2006, New York, NY
Cushman & Wakefield Sees Strength in Markets Despite Heavy Amounts of New Construction
Vacancy rates have decreased in major industrial markets over the past year, despite a surge in new construction. Cushman & Wakefield, the global real estate services firm, reported that 26 of 31 markets surveyed by the firm experienced vacancy rate decreases during the past 12 months.
As compared with the first quarter of 2005, the industrial vacancy rate has dropped from 9.2 percent to 8.1 percent as of the end of the first quarter of 2006. The vacancy rate remained unchanged, however, from year-end 2005.
Palm Beach and Miami are at five-year lows in terms of vacancy as job growth and an improved economy in Florida have combined with minimal new construction deliveries to create a healthy real estate environment.
In Bellevue, Wash., tightening office supply and increased rental rates have pushed office tenants to high tech facilities. The Southern California region continued to record the lowest vacancy rate in the nation at 4.1 percent, though it experienced a slight increase over year-end 2005 due to the completion of new speculative space which was delivered with minimal pre-leasing.
“Gains in employment and corporate profits nationally have led to an improvement in industrial markets,” said Barney Upton, executive vice president, Industrial Services, Cushman & Wakefield.
Industrial markets have seen a great deal of new construction over the last few years, and that trend has continued through the first quarter. More than 28.4 million square feet was completed over the last three months alone. Approximately 30 percent of the construction was build-to-suit, and 70 percent was speculative, which indicates confidence on the part of developers that demand is strong. Chicago (7.6 million square feet) and the Inland Empire (7.1 million square feet) led the nation in construction deliveries.
Comparing year over year, 19 markets had higher totals of new construction in the first quarter of 2006 as compared to the first quarter last year. Two were unchanged and 10 markets had lower amounts.
Overall absorption reached 9.5 million square feet in the first quarter of 2006, which means that significantly more space was occupied than vacated. Leasing activity reached 72.7 million square feet nationally.
Markets leading the nation with the greatest overall absorption included Chicago (3 million square feet), California's Inland Empire, (2.6 million square feet), Silicon Valley (2.1 million square feet), Orange County (1.8 million square feet) and Phoenix (1.6 million square feet).
First quarter sales activity was robust. Investment sales measured 40.3 million square feet, which represents a 22.1 percent increase from the transactions recorded in the first quarter of 2005. Chicago was a particularly active market, contributing 29.4 percent of the total with 11.9 million square feet of product changing hands. The Australian investment company which has purchased a total of 8.4 million square feet from Center Point Properties Trust over the past year in the Chicago metro area concluded the final phase of their portfolio acquisition, and as a result investment activity should decline in this market for the remainder of the year.
"The availability of capital for real estate, still relatively low interest rates and improved real estate fundamentals are providing a catalyst for the investment sales market," said Melody Briggs, director, Research, of Cushman & Wakefield.
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