Exclusive: Industrial Back to Pre-Recession Levels, According to Cushman

New leases for industrial properties “returned to levels not seen since prior to the 2008/9 recession,” according to a new fourth-quarter 2011 report by Cushman & Wakefield Inc.

January 20, 2012
By Nicholas Ziegler, News Editor

One of Cushman's industrial properties in Chicago

By the end of 2011, things were looking good for the industrial sector – and that trend looks to continue into 2012. New leases for industrial properties “returned to levels not seen since prior to the 2008/9 recession,” according to a new fourth-quarter 2011 report by Cushman & Wakefield Inc. More than 306 million square feet of new leases were completed last year, up 14 percent from the 269 million square feet signed in 2010 – which reached the highest level of activity since 2007.

“Two things are happening,” Jim Dieter, executive vice president and head of industrial brokerage for Cushman told Commercial Property Executive. “One, there is renewed confidence in the market. And two, we’re getting a verification that there is an acute shortage of big-box distribution space.”

Dieter noted some strong similarities in the country’s strongest industrial markets.

“When you look back at the last several years,” he said, “companies have looked to create supply-chain efficiencies. So when you see a Class A lease, it’s not always an expansion because they may have closed two locations to open another, more efficient one.” So the top markets, according to the report, were the country’s big distribution hubs of Dallas-Ft.Worth, Northern and Central New Jersey, Houston, California’s Inland Empire and even Chicago. “Those are the classic Tier 1 distribution hubs in the United States,” Dieter said, “which are showing very nice leasing activity. Companies are looking to open larger, more efficient distribution centers.”

Further, there are two factors fueling the expansion: The lack of new-space completions and well as the revving of the country’s manufacturing engine. Limited construction – 2011 saw only 20.5 million square feet of completions, down from the five-year average of 88.1 million square feet – is increasing absorption rates in nearly every major market around the country. And, for the last few years, industrial manufacturing has been dong very well in the U.S. despite the prevailing economic conditions.

“Manufacturing is the main driver within the industrial landscape,” Dieter said. “U.S. industrial manufacturing grows, and it improves export business. It improves distribution markets. It increases rail flow and intermodals. When then U.S. has a strong manufacturing component, it affects all the other components.”

As proof of his point, he noted that the national industrial vacancy rate declined to 9.2 percent by the end of 2011, down 1.1 percent from the end of 2010. Thirty of the 33 markets tracked by Cushman reported year reported year-over-year declines in vacancy, with the Inland Empire, the San Francisco Peninsula, Phoenix, Houston and Silicon Valley among the markets with the largest declines.

“We’re increasingly confident that we are at the beginning of a sustained recovery that will gain momentum over the next 12 to 24 months,” Dieter said.