Industrial Real Estate Succumbs to Sluggish Economy; Market Closes Out 2008 on a Down Note, According to Colliers International

BOSTON, Feb. 3 /PRNewswire/ -- Reflecting the troubled U.S. economy and recessionary conditions, the national warehouse market struggled during Q4'08, according to the fourth quarter industrial report from Colliers International, a leading global real estate services firm. Industrial absorption was negative during the October through December period, with occupied space shrinking by 18.1 million square feet (msf). This marked the largest such decline since early 2002.

A confluence of factors - including an increase in delivery of new industrial construction and softened demand for warehouse space - led to a rise in industrial vacancies, which jumped from 8.67 percent at the end of Q3'08 to 9.06 percent at the end of Q4. Compared to one year ago, warehouse vacancies are up from 7.90 percent to the current 9.06 percent. Market polling results indicated 42 markets reported an increase in vacant industrial space, and only 12 markets showed declining vacancy in 2008.

In terms of new supply, 46.5 msf was completed during Q4 - which was the highest quarterly injection seen in 2008. This brought full-year construction to 171.9 msf - compared to 181.2 msf in 2007.

As for Q4 rents, the average warehouse rental rate registered $5.51 per square foot (psf), which was down 1.5 percent from the third quarter average, and down 3.3 percent from the year-ago period. Notably, sizeable rent decreases were witnessed in nearly all California, Arizona, Nevada and Florida markets.

With tightening lending conditions and the anticipation of further demand weakening, builders largely ceased new construction in Q4. Indeed, only 66 msf stood under construction as 2008 drew to a close, compared with 107 msf at the end of Q3'08. Construction activity is at its lowest level since Q2 2004.

This cessation of construction will lead to a much slower growth in industrial inventory in 2009. Only 75 msf is expected to come on-line for the whole of 2009 - a major drop-off from the 172 msf brought to market in 2008. Indeed, the January ISM (Institute for Supply Management) number coming in at 35.6 truly sets the tone for a grim year ahead for manufacturing.

"Clearly, we're in the midst of a deepening recession, which continues to take its toll on the industrial sector," remarked Ross Moore, executive vice president and director of market & economic research at Colliers International. "While the consumer has been in retreat for the past several quarters, the export sector - which up until recently had been a bright spot - is now experiencing the downward trajectory that's been felt for quite some time in other areas of the economy. That said, the promise of a significant uptick in infrastructure spending, as mandated by the Obama administration, could provide a much-needed jolt for the warehouse market."

U.S. Industrial Vacancies - Year over Year

                                            Vacancy Rate   Vacancy Rate
    MARKET                                  Dec 31, 2007   Dec 31, 2008
                                                (%)            (%)

    Atlanta, GA                                11.5           12.6
    Bakersfield, CA                             2.9            6.7
    Baltimore, MD                              15.4           18.8
    Boise, ID                                   5.9            8.7
    Charleston, SC                              6.8            9.1
    Charlotte, NC                               7.5            8.2
    Chicago, IL                                 8.6           10.3
    Cincinnati, OH                              6.5            8.1
    Cleveland, OH                               8.3            7.4
    Columbia, SC                                2.4            6.8
    Columbus, OH                               10.4           11.7
    Dallas-Ft. Worth, TX                        8.8            9.8
    Denver, CO                                  6.6            8.2
    Detroit, MI                                13.2           11.5
    Fairfield, CA                                 -            9.7
    Fresno, CA                                  2.9            6.2
    Ft. Lauderdale-Broward, FL                  5.1            7.7
    Greenville, SC                              9.7            9.9
    Hartford, CT                               10.3            9.4
    Honolulu, HI                                3.0            4.4
    Houston, TX                                 4.4            6.1
    Indianapolis, IN                            8.2            7.4
    Jacksonville, FL                            5.5            8.3
    Kansas City, MO                             7.1            6.6
    Las Vegas, NV                               6.4           11.6
    Little Rock, AR                            16.7           12.9
    Los Angeles - Inland Empire, CA             8.7           13.3
    Los Angeles, CA                             2.9            3.8
    Louisville, KY                              8.6            7.2
    Memphis, TN                                14.6           11.9
    Miami, FL                                   5.6            7.8
    Milwaukee, WI                               7.4            7.9
    Minneapolis, MN                            11.0           10.4
    Nashville, TN                               5.4            7.1
    New Jersey - Central                        8.1            9.3
    New Jersey - Northern                       6.1            6.4
    Oakland, CA                                 6.7            8.0
    Orange County, CA                           3.8            3.9
    Orlando, FL                                 6.4           10.1
    Philadelphia, PA                            7.9            9.0
    Phoenix, AZ                                10.3           15.4
    Pleasanton/Walnut Creek, CA                10.0           13.4
    Portland, OR                                7.1            6.7
    Raleigh, NC                                16.2           19.2
    Reno, NV                                    8.9           13.3
    Sacramento, CA                             10.4           10.8
    San Diego, CA                               8.3            9.1
    SF Peninsula - San Mateo, CA                4.6            6.4
    San Jose/Silicon Valley, CA                 8.9           10.6
    Santa Rosa/Sonoma County, CA                  -           12.1
    Seattle, WA                                 6.3            5.9
    St. Louis, MO                               7.2            6.4
    Stockton/San Joaquin County, CA            11.7           12.1
    Tampa Bay, FL                               5.7            7.8
    Washington, DC                              9.9           11.7
    West Palm Beach, FL                         7.0            9.0
    US - TOTAL                                  7.9            9.1

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 11,000 employees span the world in 293 offices in 61 countries. On a worldwide basis, Colliers manages more than 886 million square feet and has revenue of $US 2.0 billion.