The Peninsula Industrial Pros

Your Commercial Real Estate Source in the San Francisco Bay Area

Industrial’s Continued Outlook: Strong Leasing

By Paul Bubny

The third quarter marked another chapter in the ongoing success story of the industrial sector across the US and Canada, and Colliers International doesn’t see the sector losing its mojo anytime soon. With a 21-basis point decline in vacancy during Q3—to 7.5% in the US and 4% in Canada—and with the quarter’s 64.8 million square feet of absorption representing the second-highest quarterly tally since the recovery began, clearly the momentum is there.

And so it will continue even as more new product comes on line, Dwight Hotchkiss, national director of industrial | USA for Seattle-based Colliers, tells “Although the rate of construction will increase in 2015, we predict strong, positive absorption,” he says.

“The second half of 2014 has seen a visible increase in activity for product between 50,000 and 250,000 square feet and, along with anticipated demand in big box, will drive the absorption numbers,” adds Hotchkiss. Regionally, the strongest markets for absorption in both Q3 and year-to-date included Chicago, Dallas-Fort Worth, Atlanta, Los Angeles and the Inland Empire, Houston, Indianapolis and Stockton/San Joaquin County, CA.

Colliers’ Q3 industrial report notes that development activity increased last quarter in both the US and Canada to a total of 155.9 million square feet under construction, up from 142.9 million square feet in Q2. “The absorption-new supply ratio increased slightly to 1.7:1.0, from 1.4:1.0 in Q2, but has come down significantly from more than 2.0:1.0 in 2013,” the report states. “This will be a key metric to gauge the supply-demand balance as development activity increases further” in subsequent quarters.

Where that development occurs may shift slightly, but only slightly, thanks to the uptick in demand for same-day delivery by shoppers buying online. “The strongest demand and development will continue to be in the major markets, which can service the major population centers which can be delivered same day,” Hotchkiss says, adding that “some next-tier cities will see some development as more and more retailers look for sites.”

Not only development activity has been strong: investment sales have exceeded $11 billion in each of the past six quarters, the longest such streak since Q1 2008, says Colliers. The average cap rate decreased to 7.3% in Q3, the lowest since Q2 ‘08, and cap rates for the top quartile of warehouse properties are noticeably lower, averaging 5.8% during the quarter.

Read entire GlobeSt article here.

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This entry was posted on December 4, 2014 by in Industrial, Market Updates, National and tagged , .
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