by Randyl Drummer for CoStar Group
The leasing market for U.S. industrial real estate continues to show improvement but is not yet on fire. Rent declines are decelerating as consumer spending picks up, available warehouse and distribution space is absorbed, and companies emerge from the recession in growth mode. That’s the consensus of CoStar analysts, corroborated by recent reports from executives at the world’s two largest warehouse and distribution operators, ProLogis (NYSE: PLD) and AMB Property Corp. (NYSE: AMB).
The U.S. just recorded its fourth straight quarter of positive absorption, posting 27 million square feet in the first quarter, compared to a negative 15 million square feet in first-quarter 2010, said Jay Spivey, CoStar director of analytics, during the research firm’s First Quarter Industrial Outlook and Review.
Absorption levels have reached roughly 2003 levels when the country was emerging from the previous recession, said Spivey, joined in the second installment of CoStar’s quarterly State of the Commercial Real Estate Industry webinar series for clients by Hans Nordby, director of advisory services; and Shaw Lupton, real estate economist.See related CoStar office market coverage.
In fact, the current early stage recovery in industrial real estate is actually more robust than at the same point in the last recovery, with nearly 80 million square feet absorbed over last four quarters — about four times the amount filled during the early 2000s recovery period, Spivey noted. Vacancies have once again edged below 10%.
“Overall, the steady recovery in industrial real estate continues,” said Walter Rakowich, co-chief executive officer of Denver-based ProLogis, during the company’s recent first-quarter 2011 earnings call with investors. “And while issues such as sovereign debt concerns, rising energy costs, military actions and the devastating earthquake in Japan contributed to some deferrals of customer leasing and development decisions, we remain encouraged by the continued firming of market fundamentals that we’re seeing.”
The improved supply and demand metrics are starting to impact quoted warehouse rents. While still falling year over year, the rate of decline slowed further in the first quarter.
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