U.S. Industrial Markets Showing More Signs of Strength

by CoyDavidson on November 15, 2011

North American Industrial Highlights – 3Q 2011

The U.S. industrial market racked up another good quarter marked by rising occupancy and a decidedly lower vacancy rate. Vacancies dropped in the majority of markets, and—with the exception of the Northeast—every region reported a lower vacancy rate for the quarter. Despite another considerable gain in occupancies, warehouse rents registered a further decrease, continuing an almost four-year trend.

With the economy registering modest growth in the third quarter, and similar expansion anticipated in the coming quarters, demand for warehouse space is expected to remain at currently levels. The continued health of the manufacturing sector and a corresponding growth in exports remain key demand driver the nation’s industrial markets. As demonstrated by the Institute for Supply Management

(ISM) index, manufacturing is off from the highs experienced in the spring, but remains in expansion territory. For October the ISM manufacturing index registered 50.8 (50 indicating expansion), with a few sub-indexes such as new orders increasing significantly from the previous month. Over the next few quarters, the industrial market is expected to continue its slow crawl back to a more even balance between supply and demand but no sharp snap back is anticipated.

With the latest slowdown in the global economy, a true rebound in the warehouse market is unlikely to occur before well into 2012. Warehouse construction, however, will remain at very low levels, so any incremental increase in occupancies will immediately translate into lower vacancies. The rent picture is unlikely to change soon, with vacancies still too high to give landlords any form of pricing power. Beginning in 2012, however, select markets should begin to see rents hold firm and even post modest increases in certain submarkets, but widespread increases are doubtful until 2013.

NA Industrial Highlights – 3Q 2011

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