Business/industrial Parks on the Upswing: Global Trade Combined with a Percolating Domestic Economy Are Powering an Improvement in the Industrial/business-Park Property Market. the Best Evidence of This Is the Booming Conditions in California's Inland Empire

By Bell, John | Mortgage Banking, January 2007 | Go to article overview

Business/industrial Parks on the Upswing: Global Trade Combined with a Percolating Domestic Economy Are Powering an Improvement in the Industrial/business-Park Property Market. the Best Evidence of This Is the Booming Conditions in California's Inland Empire


Bell, John, Mortgage Banking


The nation's business/industrial park market is making a transition from recovery to expansion mode. The national vacancy rate at midyear 2006 stood at 7.9 percent, the lowest level since third-quarter 2001, according to Chicago-based Grubb & Ellis Co.'s quarterly Industrial Market Trends-North America report. [??] New York-based Cushman & Wakefield in its National Industrial MarketBeat, Mid-Year 2006 report pegged the vacancy rate even lower, at 7.7 percent at midyear 2006. Peter Quinn, Cushman & Wakefield's senior director, industrial services, notes, "The improvement in industrial vacancies is evidence of the national economic recovery. [??] "Economists have predicted a downturn in manufacturing production for several quarters that has not materialized. The economy remains resilient," he adds.

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Industrial property information sources don't break out business/industrial park market share in their reports. But Thomas Bisacquino, president of the Herndon, Virginia-based National Association of Industrial and Office Properties (NAIOP), estimates that about 50 percent of all industrial properties are located in parks. They provide a major indication of the overall health of the industrial market.

Robert Bach, senior vice president, research and client services, for Grubb & Ellis, says the business/industrial park market has moved out of recovery and into expansion along with the rest of the industrial property market.

"The economy is growing, although at a lesser rate, and the primary drivers of demand for industrial space have been strong retail sales, business capital spending, manufacturing output [with the exception of domestic autos] and global trade," he says. The overall industrial market is featuring stable versus strong absorption and construction with rental rate increases near the rate of inflation, he adds.

Grubb & Ellis' Industrial Market Trends-North America report cites net absorption for the first three quarters of 2006 at 126 million square feet versus 147 million square feet for the first three quarters of 2005. Third-quarter 2006 net absorption was 52.4 million square feet.

Bisacquino adds, "In spite of a softening economy, manufacturing and logistics are strong."

Michael Brennan, president and chief executive officer of Chicago-based First Industrial Realty Trust Inc., cites strong capital spending by business as the primary driver of growth. "It all starts with the strength of business spending," he says. "Great growth in earnings has generated pristine balance sheets and re-investment in all phases of business."

He adds, "At the same time, robust demand domestically and the impact of global trade have generated higher plant capacity, from 76 percent two years ago to 83 percent today--the highest in over 10 years. Another growth factor is the higher occupancy rates for warehouse properties."

John Huguenard, senior vice president in the Indianapolis office of St. Louis-based Colliers Turley Martin Tucker, ascribes the growth in part to shorter lease terms, which are helping to get buildings leased.

"It's hard for users to make decisions, so many are opting for shorter leases. Due to the strength of the capital markets, investors are willing to buy on shorter leases--which allows developers to build on a spec basis because there's so much money out there," Huguenard explains.

Hugh Kelly, principal of Hugh Kelly Real Estate Economics, Brooklyn, New York, a national real estate consulting firm, concedes that growth has occurred in the wake of increased consumer consumption and global trade, but stops short on the issue of whether it's in expansion. "The market is still not back to the level of the late 1990s," he says.

What's ahead

Given positive assessments of current market conditions, it's not surprising that some sources are optimistic about the outlook for the remainder of 2006 into 2007. …

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Business/industrial Parks on the Upswing: Global Trade Combined with a Percolating Domestic Economy Are Powering an Improvement in the Industrial/business-Park Property Market. the Best Evidence of This Is the Booming Conditions in California's Inland Empire
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