Industrial Sector Benefits
From Warehouse Activity
by Ryan Chittum
From The Wall Street Journal Online
December 22, 2003
As Americans continue putting money into home improvements, retailers like Home Depot Inc. are leading a rebound for the warehouse part of the industrial real-estate market. But the high-tech and manufacturing real-estate sectors are still weak.
Home-improvement stores and furniture retailers such as Crate & Barrel have taken one-third of the large warehouse leases signed this year, says Cynthia G. Jeter, research director for Cushman & Wakefield, a New York-based commercial real-estate services firm.
That's good news for the industrial real-estate market, which has been battered by the downturn in the economy, resulting in falling rents and vacancies that neared all-time highs.
Office-service real estate -- a mix of back offices and warehouse or showroom space -- also is picking up. And combined with the good news in the warehouse market and an uptick in construction starts, it's another sign that the economy is beginning to hum along, as businesses begin to build up inventory on expectations of better sales. Industrial real-estate activity is generally considered a leading indicator of the direction of the economy.
By the end of the third quarter, warehouse tenants had absorbed 9.5 million square feet of space, compared with 1.6 million last year. "You have retailers within the home-furnishings and home-center business that are doing extremely well and doing more and more big facilities," says Stan Danzig, a Cushman & Wakefield broker.
But in a sign many companies are still in cost-cutting mode, a lot of the big-box deals are being signed by companies that are consolidating their operations, Mr. Danzig says.
The manufacturing market, meantime, is facing a problem with shadow space, according to a report by Green Street Advisors Inc., a Newport Beach, Calif., real-estate stock research firm. That's space that is leased, but underused. The space will have to be used up before there can be significant declines in vacancies and increases in rents.
The high-tech industrial space is continuing to see negative absorption, with tenants shedding more space than they lease.
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