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The industrial real estate market posted a shaky first quarter, with absorption considerably below anticipated levels, according to a report by Colliers International, the global real estate services firm. Even though demand for industrial space fell far short of expectations, rents managed a small increase during the first quarter.
First quarter absorption was disappointing, with occupied space increasing by just 27.3 million square feet (msf), compared with 36.9 msf in Q4. Industrial absorption totaled 40.0 msf in the year-ago quarter. In addition, contrary to expectations, Q1 industrial construction completions also came in below expected levels, keeping the rise in vacancy to just four basis points.
"Despite a slow start, it's too early to sound the alarm," remarked Ross Moore, senior vice president and director of market & economic research at Colliers International. "The underlying economy, with the exception of the housing sector, continues to register measured growth, which we believe will eventually help bolster the warehouse leasing market."
Indeed, demand drivers reflected a slowing economy during the January through March period. Even though the ISM index remained above the critical "50" level -- at 50.9 for March -- advance Q1 GDP data showed the U.S. economy expanded at a sluggish 1.3 percent rate. That said, the global economy continues to post robust growth, suggesting the export sector will remain a bright spot.
Q1 industrial vacancies measured 8.15 percent, versus 8.11 percent during Q4 and 8.51 percent during the year-ago quarter. Warehouse rents increased by 1.9 percent in Q1, after rising by only 0.4 percent during the fourth quarter of 2006. This left rents up 8.5 percent over the year.
Just a handful of markets (13 percent) are forecasting demand to drop in the current quarter, with the vast majority anticipating leasing markets to either remain steady, or expand.
First quarter new construction totaled 36.8 msf, versus 48.4 msf during Q4'06 and 41.4 msf of completions in the year-ago quarter.
Industrial developments under construction increased 4.6 msf during the first quarter, reaching 140.0 msf. This compares to 135.4 msf during Q4'06 and 108.5 msf at the close of the year-ago quarter.
Industrial Vacancies - Q1'07 / Q1'06
VACANCY VACANCY
MARKET RATE MAR 31, RATE DEC 31,
2007 (%) 2006 (%)
Honolulu, HI 1.9 2.3
Los Angeles, CA 3.0 2.8
Bakersfield, CA 3.4 3.5
Charleston, SC 3.8 6.5
Orange County, CA 4.0 4.0
Ft. Lauderdale/Broward County, FL 4.2 3.7
Columbia, SC 4.2 0.5
Las Vegas, NV 4.5 4.2
Miami, FL 4.6 4.4
Tampa, FL 4.7 4.6
Riverside/San Bernardino - Inland Empire, CA 4.9 5.4
Nashville, TN 5.0 5.3
Jacksonville, FL 5.1 6.2
West Palm Beach, FL 5.5 4.1
Oakland, CA 5.6 5.4
Orlando, FL 5.6 6.7
San Francisco Peninsula - San Mateo, CA 5.7 5.5
Boise, ID 5.8 5.7
Cincinnati, OH 6.0 5.9
Reno, NV 6.1 4.9
Fresno, CA 6.3 7.6
St. Louis, MO 6.3 6.5
Seattle, WA 6.4 6.4
New Jersey - Northern 6.4 5.9
Indianapolis, IN 6.4 6.3
Louisville, KY 6.6 6.7
Denver, CO 6.7 7.2
Houston, TX 7.1 6.6
New Jersey - Central 7.5 7.5
Milwaukee, WI 7.6 7.7
San Diego, CA 7.8 6.9
Portland, OR 7.8 10.4
Kansas City, MO 7.9 8.4
Philadelphia, PA 8.7 8.7
Cleveland, OH 8.7 8.9
Chicago, IL 8.9 9.0
Charlotte, NC 9.2 9.7
Washington, DC 9.5 9.4
Phoenix, AZ 9.7 9.0
San Jose/Silicon Valley, CA 9.7 10.0
Dallas-Ft. Worth, TX 9.9 10.0
Minneapolis, MN 9.9 10.3
Stockton/San Joaquin County, CA 10.2 9.1
Hartford, CT 10.2 8.6
Pleasanton/Walnut Creek, CA 10.7 8.6
Columbus, OH 10.9 10.5
Atlanta, GA 11.4 11.8
Sacramento, CA 11.8 11.4
Greenville, SC 12.6 12.8
Detroit, MI 13.3 13.5
Memphis, TN 14.3 14.1
Raleigh, NC 15.7 14.5
Baltimore, MD 16.9 15.2
Little Rock, AR 17.7 9.4
Boston, MA 22.5 21.8
About Colliers
Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 9,327 employees span the world in 241 offices in 54 countries. On a worldwide basis, Colliers manages 595,725,580 square feet, and has revenue of $US 1,442,478,223. For more information, visit www.colliers.com.
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