Industrial Vacancies
Are Stabilizing Slightly
by Ray A. Smith
From The Wall Street Journal Online
May 20, 2004
New reports indicate that the nation's industrial real-estate market, while stabilizing slightly, still has a ways to go before fully recovering.
The vacancy rate for the nation's top 45 industrial real-estate markets fell to 11.5% in the first quarter, from 11.6% in the fourth quarter of 2003, according to New York-based real-estate research firm Reis Inc. Another firm, Grubb & Ellis Co., of Northbrook, Ill., which covers 38 markets, reports the first-quarter vacancy rate at 9.8%, essentially the same as in the fourth quarter of 2003 and down slightly from 10% in the first quarter of 2003. (Reis doesn't have a year-ago comparison as it began tracking quarterly industrial-market data in the third quarter of 2003.)
Average rents stayed flat at $4.25 a square foot, according to Reis. Grubb & Ellis research, which breaks out rent levels for several types of industrial properties, shows warehouse rents falling to $4.35 a square foot, from $4.39 in the fourth quarter of 2003 and $4.43 a square foot in the year-ago first quarter. The firm says rents for research-and-development/flex industrial space fell to $9.47, from $9.96 in the fourth quarter of 2003 and $11.07 a year ago.
Absorption, or the net change in the amount of occupied space, was modestly positive, both firms reported, but taken together, the results suggest "this market is not roaring ahead," says Lloyd Lynford, chief executive of Reis. "It's not as if the slightly improved pace of net absorption allowed landlords to bump up rents."
The industrial real-estate sector is still trying to recover from anemic demand over the past few years. Though the economy has shown recent signs of strengthening, the research firms are only cautiously optimistic about the industrial real-estate market.
"An improving economy will probably drive demand to a point where we will see some re-leasing of older manufacturing facilities, maybe by smaller or regional companies," says Robert Bach, national director of market analysis at Grubb & Ellis. "When you see that happen, vacancy rates will start slowly coming down."
Mr. Lynford of Reis says not to expect the vacancy rate to go down too much or for rents to go up too much, mainly because construction completions are forecast to exceed absorption, meaning more available space.
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