Rodney Goulet, Vice President, Supply Chain Strategy and Infrastructure, Colliers International (November 2010)
U.S. Industrial Market Registers Modest Gains - Ross J. Moore Chief Economist | USA, Colliers International
After beginning 2010 on a weak note, industrial markets across the U.S. collectively absorbed 13.3 million square feet of warehouse space in the second quarter and an additional 3.6 million square feet in the third quarter. New construction remains muted, which will be a key factor pushing vacancy down in the coming quarters. For the third quarter industrial vacancy was little changed at 11.02 percent. Despite the recent firming in fundamentals, warehouse rents fell during the third quarter decreasing just under 1 percent to $4.74 per square foot.
With the economy registering only modest growth in the third quarter, and similar expansion anticipated in the coming quarters, demand for warehouse space is expected to be tepid at best. While detracting from GDP growth, for the second consecutive quarter, imports surged during the third quarter, which acted as a net positive for many U.S. industrial markets. Although the Institute for Supply Management (ISM) manufacturing index for October was down from earlier in the year, at 56.9 this important business metric was still well above the critical "50" level, showing the manufacturing sector is still in expansion mode. For the next few quarters, the industrial market is expected to continue to form a bottom but a sharp rebound in demand is not anticipated before well into 2011.
With almost no new warehouse construction coming onto the market, however, even a modest bounce back in demand will quickly translate into stronger fundamentals. Rents are expected to firm by year-end, but apart from a few select markets, warehouse lease rates are not expected to show any appreciable increase until the second half of 2011 at the earliest.