Magazine article Mortgage Banking

Industrial Property Market Thriving

Magazine article Mortgage Banking

Industrial Property Market Thriving

Article excerpt

U.S. INDUSTRIAL PROPERTY IS CONTINUING ITS STRONG RECOVERY, buoyed by favorable economics. One need only look at the second quarter 2014 real gross domestic product (GDP) number from the Bureau of Economic Analysis to see the momentum that's been building in the economy. The third estimate of real GDP for the second quarter showed an increase of 4.6 percent. That was up sharply from the first quarter real GDP number, which saw a decline of 2.1 percent. "The market exploded in the second half of 2012 and is firing on all cylinders," says Jared Sullivan, senior economist at Boston-based CBRE Econometric Advisors. [paragraph] The second-quarter 2014 Marfeetbeat Industrial Snapshot-United States report, by New York-based Cushman & Wakefield Inc., notes that with vacancy rates and speculative construction back to pre-recession levels, the industrial sector continues to lead the country's commercial real estate recovery. [paragraph] Industrial demand rose to a record level at the end of 2013 and advanced to an annual rate of 5.5 percent for the second quarter of 2014, Cushman & Wakefield's report adds.

Not as dependent on job growth

"Industrial has been doing very well--better than the office market," says Robert Bach, director of research-Americas in the Chicago office of New York-based Newmark Grubb Knight Frank, a global real estate services firm.

According to Bach, the reason is that industrial is less dependent than office on job growth. "People overlook the fact that job growth is not that important for industrial," he says.

He pegs the growth of e-commerce as the main stimulant of demand for industrial space. Companies are also continuing to re-engineer their supply chains to meet customer demand.

"The drivers for industrial demand have been pretty strong despite the uneven economic recovery," he concludes.

In its second-quarter 2014 National Industrial Market report, Newmark Grubb Knight Frank says the U.S. industrial property market continued to tighten during the quarter, but at a slower pace than in recent quarters. Absorption of 38.2 million square feet outpaced completions for the 15th consecutive quarter, but by the second lowest margin over this time span.

Nevertheless, the surplus of demand over supply was enough to push the second-quarter vacancy rate down by 10 basis points to 7.7 percent--the lowest level in more than seven years, the report continues.

The tightening market pushed the average asking rental rate to a five-year high of $5.36 per square foot per year, triple net.

Hugh Kelly, principal of Brooklyn, New York-based Hugh F. Kelly Real Estate Economics, a national real estate consulting firm, and professor of real estate at the New York University Schack Institute of Real Estate, says industrial is doing well despite slow employment growth. A variety of economic factors are making it perform well, including:

* the restoration of manufacturing;

* increased import/export activity; and

* upticks in real estate construction, including materials going into finished housing products.

Thomas Bisacquino, president of Herndon, Virginia-based NAIOP, the Commercial Real Estate Development Association, concurs.

He points out there's less activity now in brick-and-mortar stores and more in industrial pipelines through e-commerce fulfillment centers that speed orders to customers the next day.

David Hotchkiss, national director, industrial-USA in the Los Angeles office of Seattle-based Colliers International, comments, "The industrial market has been one of the top-performing sectors in commercial real estate in 2014. Large corporate users as well as mid-size and smaller firms have been consistent throughout the year in the appetite for space."

Alan Pontius, senior vice president and national director, commercial property groups, in the San Francisco office of Calabasas, California-based Marcus & Millichap Real Estate Investment Services Inc. …

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