U.S. Industrial Trend Forecast
- U.S. industrial demand will continue the gradual recovery that began in Q4 2010. Absorption in Q4
- 2011 was the highest recorded since the recovery started: 41.3 million square feet.
- Speculative construction will gain momentum in primary and select secondary markets. Newly delivered inventory in 2011 was 38.5 million square feet, 14.1 million more than in the previous year.
- We forecast a U.S. vacancy rate to drop to below 8.9% in Q4 2012.
- Average rental rates will remain flat; however core modern industrial in high-demand markets will be able to garner above-average rental rates.
- Warehouse space will receive increased investor focus in 2012. Expect growing warehouse rents and declining landlord concessions for modern warehouse space in major markets.
Expect U.S. Vacancy Rate to Drop Below 8.9% in 2012
The U.S. economy has recovered in fits and starts, but despite uneven quarterly GDP growth, occupiers of industrial property have expressed a growing demand. Beginning in the second quarter of 2010, this demand reached a new cyclical high of 41.3 million square feet of absorption in Q4 2011.
We expect U.S. GDP growth will stay around 2% in 2012 and reach 3% in the following year. Current absorption rates should hold steady through 2012. Assuming low levels of new construction, we are forecasting the U.S. vacancy rate to drop from 9.7% in Q4 2011 to below 8.9% in Q4 2012.
We expect a dip in economic activity in Europe that will be countered by the strengthening U.S. domestic economy. Some impact on industrial property may be felt in Northeast markets, where there is greater import/export exposure to the Eurozone. Many businesses which have held off on capital expenditures during the downturn will finally make those purchases in 2012, which should bolster demand for warehouse and manufacturing space.