CBRE Econometric Advisors Projects Gradual Increase in Activity Over Next Two Years
Boston, MA – December 9, 2010 – (RealEstateRama) — The U.S. industrial real estate sector’s national availability1 rate is expected to fall to 13.1% in 2011, down from 14.0% in the third quarter of 2010, according to new analysis from CBRE Econometric Advisors (CBRE-EA). CBRE-EA forecasts that the industrial availability rate is expected to continue declining during 2012, ending the year at 11.8%. The national industrial availability rate peaked at 14.1% in 2Q 2010.
CB Richard Ellis Group Inc’s forthcoming Annual Trends 2011 report shows that slow but improving growth will be a hallmark of the recovery for the industrial real estate sector. According to CBRE-EA, the speed and timing of recovery for industrial real estate will vary geographically, with some markets seeing a revival of demand sooner than others.
“The nascent recovery in the nation’s largest industrial markets has been sporadic, with periods of positive net absorption followed by declines,? said Luciana Suran, Economist, CBRE-EA. ?The economic recovery will need to take full hold before the industrial market overall can hope to be made whole again.?
The report notes that while demand for industrial space, particularly warehouses, has turned positive, inventory re-stocking and moderate import trends suggest high availability rates will continue. Although imports surged starting in 2Q 2010, much of the import growth was driven by inventory replenishment among businesses with extremely lean stock levels, as well as an earlier-than-usual start to the holiday shopping season.
CBRE-EA also finds that despite the precarious economic environment, demand for certain types of industrial facilities has remained positive. Demand for Class A warehouse/distribution space—typically defined as facilities larger than 400,000 sq. ft., which were built in the past decade—remained constant even during the depths of the recession. Part of this demand emanated from supply chain consolidation as many companies centralized and consolidated their supply chains, given the financial benefits and increased inventory visibility associated with doing so.
“With record low amounts of supply, larger and more modern warehouses will be the first to benefit from increasing centralization and consolidation of company supply chains,? added Ms. Suran.
CB Richard Ellis’ Annual Trends 2011 report also highlights shifts in transport modes, which will draw increased attention to new geographic areas. For example, the emergence of increased air transport will continue to benefit Los Angeles and Dallas, among other markets. Both the value and weight of goods imported via air have come close to reaching their pre-recession highs, while seaborne goods imported via container ships have experienced a more subdued recovery. A number of companies have turned to the more expensive but faster method of air freight, rather than add to inventory holding and capital costs.
The report also notes that imports do still enter the country in much higher volumes through the nation’s seaports, which will continue to experience a great deal of activity. Traffic has rebounded strongly in a number of ports, including Seattle and Savannah. Furthermore, the widening of the Panama Canal—with an expected completion date of 2014—will boost demand in Gulf and East Coast markets.
Continued improvement in industrial real estate availability will also benefit from the relative scarcity of industrial construction, according to the CBRE-EA analysis. The quarterly historical average of industrial construction (beginning in 1989) is 42.8 million sq. ft., but supply has been well below this figure for nearly two years, including a record-low level of just 2.9 million sq. ft. in the third quarter of 2010. Construction was significantly lower entering the recent recession than it was prior to previous downturns.
The sector has also benefited from a relatively low incidence of distressed properties as compared to other property types. The industrial market has been largely immune to distressed activity due to investors in the sector using far less leverage than those in the office sector.
“Despite rents that are expected to continue falling in 2011, the less aggressive behavior of investors in the industrial space prior to the crash has kept industrial properties from the levels of default and distress seen in other property types,? noted Ms. Suran.
To speak with Ms. Suran or another CBRE-EA expert, please contact Robert McGrath (212.984.8267 or ).
1 Availability is space that is actively being marketed and available for tenant build-out within twelve months.
About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2009 revenue). The Company has approximately 29,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com.