Companies eyeing additional warehouse space might want to act now. Demand for industrial property picked up sharply in the fourth quarter, resulting in net absorption of 28.6 million square feet of space, according to a report from real estate brokerage Colliers International, and that leasing activity should eventually lead to an increase in rents.
"If I was a CFO, I think I would start preparing for, over the next two or three years, significantly higher rents," says Ross Moore, chief economist in the U.S. for Colliers. "The supply side is dead and it takes quite a long time to ramp construction up."
The market for industrial property reflects overall manufacturing activity, exports and imports, and consumer demand, Moore says. "If you look at the forecasts, many economists have GDP at 4% for 2011," he says. "If that is the case, we should see industrial take off."
Markets that saw a surge in leasing during the fourth quarter included Charleston, Cincinnati, Dallas-Fort Worth, California's Inland Empire, Little Rock, New Jersey, Philadelphia, Phoenix and Savannah.
For 2010 as a whole, the market for industrial space saw net absorption of 23.7 million square feet, according to Colliers; that compares with the 160.7 million square feet of industrial space that returned to the market in 2009.
As of year-end, the vacancy rate for industrial property stood at 10.74%, down from 10.96% at the end of the third quarter. Despite the pickup in activity, average asking rents slipped a bit in the fourth quarter, to $4.60 a square foot, down from $4.74 a square foot in the third quarter. Moore says historically, rents rise once the vacancy rate gets below 10%, which he expects to occur by the end of this year.
Some of the spurt in demand late last year may have been opportunistic. "The writing's on the wall," he says. "These unusually low lease rates aren't going to last forever."
Colliers has also seen some pick-up in the office market, where healthy leasing in the fourth quarter pushed the vacancy rate to down 16.11%, from 16.40% at the end of the third quarter. Moore says demand for office space is tied to employment growth, and notes that while overall job gains have been tepid, business and financial services jobs are growing more rapidly.