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Industrial Vacancies Continued to Increase in First Quarter; Rebound Expected in 2011
Net absorption was mired in the red for a sixth consecutive quarter, totaling minus 12.4 million square feet, according to Grubb & Ellis. It was the shallowest loss of occupancy since the fourth quarter of 2008. By comparison, net absorption for all of 2009 was minus 140 million square feet.
Developers delivered 4.3 million square feet of new product in the first quarter, the lowest rate in at least the past decade. Only 13.1 million square feet of space remained in the construction pipeline or just 0.1 percent of the existing inventory, the lowest percentage since Grubb & Ellis began tracking the national industrial market in 1986.
The average asking rental rate for all types of industrial space offered on the market at the end of the first quarter was $5.16 per square foot per year triple net, a decline of 0.8 percent from the fourth quarter and 6.7 percent from the year-ago quarter.
Rates for available space ended the quarter at $5.09 for general industrial (primarily manufacturing), $4.18 for warehouse-distribution and $9.16 for R&D-flex. Over the past four quarters, the average rates slipped by 5.3 percent for general industrial, 6.8 percent for warehouse-distribution and 9.0 percent for R&D-flex, according to Grubb & Ellis.
The drivers of demand for industrial space have been improving for several months including the ISM manufacturing index, freight shipments, imports and exports, inventory restocking and retail sales. But the economic decline was so precipitous when the financial markets hit the wall in late 2008 that it will take awhile for many of these indicators to make up the lost ground, according to Grubb & Ellis.
But industrial product has a shorter construction timeline than office, retail or apartment product, meaning that the industrial market will hit bottom by the end of this year, followed by a measured recovery beginning in 2011, according to Grubb & Ellis.