Magazine article Mortgage Banking

Business/industrial Parks' Slow Recovery: Recovery Is under Way for Industrial and Business Parks. Three Markets-Northern New Jersey, Chicago and Los Angeles-Illustrate the Factors Fueling the Rebound in the Nation's Stronger Industrial Markets

Magazine article Mortgage Banking

Business/industrial Parks' Slow Recovery: Recovery Is under Way for Industrial and Business Parks. Three Markets-Northern New Jersey, Chicago and Los Angeles-Illustrate the Factors Fueling the Rebound in the Nation's Stronger Industrial Markets

Article excerpt

THE NATION'S BUSINESS/INDUSTRIAL PARK MARKET IS GRADUALLY recovering, following a lackluster 2003. However, this recovery is by no means evenly spread across the board. It's proceeding slowly even in the strongest industrial markets. [??] The national vacancy rate ended third-quarter 2004 at 9.5 percent--an improvement over second-quarter 2004's 9.7 percent, and 9.8 percent a year ago, according to Northbrook, Illinois-based Grubb & Ellis Co. in its U.S. Industrial Market Summary: 2004-Q3 report. [??] Grubb & Ellis ascribes the gains to expansion in the manufacturing sector, strong retail sales and a continued trend toward consolidation into larger regional distribution facilities. [??] Industrial property information sources don't break out business/industrial market share in their reports. But Thomas Bisacquino, president of the Herndon, Virginia-based National Association of Industrial and Office Properties (NAIOP), estimates that 75 percent to 80 percent of all industrial properties are located in parks. [??] Michael Brennan, president and chief executive officer of Chicago-based First Industrial Realty Trust Inc., pegs the figure even higher at 90 percent.

SIOR sees absorption

One of the more optimistic observers of the industrial property market is the Washington, D.C.-based Society of Industrial and Office Realtors (SIOR), an international organization of 2,800 real estate professionals. David Houston Jr., president of SIOR, says the industrial market was on track for net absorption of 100 million square feet in 2004--the highest total since 1999 and double the figure of 2003. He says the market turned the corner in the second quarter of 2004. after four consecutive flat quarters, and is on the way back up.

Bisacquino agrees that the market is coming back. "It's going to be a slow and protracted recovery which varies from market to market. But the worst is behind us with the market bottoming out in third-quarter 2004," he says.

Brennan, whose firm is the nation's largest provider of diversified industrial real estate, also notes improvement. "National occupancies went up 40 basis points in third-quarter 2004 as vacancies declined to 11.2 percent from 11.6 percent in the second quarter of 2004," he says. Brennan's firm has 998 industrial properties owned, operated or under development in the nation's top 25 industrial markets.

John Huguenard, principal and senior vice president in the Indianapolis office of St. Louis-based Colliers Turley Martin Tucker (CTMT), agrees that some markets are performing better than others, but cites the re-appearance of spec product on the market as a positive sign on the part of developers. He says many corporate users are finally making long-term leasing commitments after opting for shorter leases in 2002 and 2003.

Thomas Peck, senior vice president-investor relations and capital markets of Indianapolis-based Duke Realty Corporation, offers a regional perspective. Peck's firm is a regional developer of business/industrial parks in 10 midwestern and southern states.

He says slow- to moderate-economic improvement has triggered a pickup in demand and occupancies that began in first-quarter 2004.

A major source of industrial market data is New York-based Moody's Investors Service, through its quarterly CMBS: Red-Yellow-Green Update[TM] reports. These reports rate the health of the various real estate product sectors and markets. The red-yellow-green ratings peg the relative strength of commercial property types and markets, ranging from negative (red) to positive (green). A numerical rating of zero to 100 is also used.

In its CMBS: Red-Yellow-Green Update, Third Quarter 2004, Moody's ranks the industrial sector in the green with a composite score of 67 following a gradual rise over several quarters.

Sally Gordon, vice president and senior credit officer at Moody's, says the improvement can be traced to increased manufacturing and distribution activity sparked by consumer demand. …

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