Port of Los Angeles

SANTA ANA, CA-The logistics space market is showing signs of hope despite being battered by the recession and continuing to post higher vacancies, according to a new report. The report, by locally based Grubb & Ellis Co., cites plunging construction of new space, signs that the manufacturing downturn is nearing its end and a combination of rising new orders and falling inventory that bodes well for logistics space demand. These and other factors “translate into more goods flowing through corporate supply chains, which will support demand for logistics space,” the report states.

The new report covers the second quarter and is the latest that Grubb & Ellis has issued regarding the logistics market since the company unveiled its debut Logistics Market Trends report earlier this year.The Santa Ana-based company said at the time that the rising importance of logistics space as a subset of industrial space prompted it to produce the new report on logistics space. The debut report and the new report both rank the top 10 US logistics markets and include statistics on vacancy rates, rents and other data for 25 other logistics markets across the country, including regional overviews.

According to the report, the amount of logistics space remaining in the construction pipeline has plunged from 60.4 million square feet at mid-2008 to just 9.2 million square feet at mid-2009. Grubb & Ellis cites a number of economic indicators, including the Institute for Supply Management’s purchasing managers index, durable goods orders, factory orders, wholesale trade and various regional manufacturing surveys. It says these indicators “suggest that the deep downturn in the manufacturing sector is nearing an end.” Other factors cited include a recent turnaround in imports and exports, which drive traffic at Southern California’s ports.

Despite these hopeful signs, the Grubb & Ellis report shows that a decline in retail sales, manufacturing activity and international trade, combined with the delivery of new speculative space to the market, caused vacancy rates for the logistics sector to increase for the ninth consecutive quarter. Bob Bach, senior vice president and chief economist at Grubb & Ellis, says that demand is expected to pick back up in the second half of this year. New orders are rising while inventories are very low, meaning that manufacturers will need to increase hiring and production in the near term, Bach says.

The report shows that the logistics space vacancy rate has climbed by 2.6% to 13.3% since the first half of 2008, but it notes that several rail operators have announced plans to expand existing–and build new–intermodal facilities in markets including Greencastle, PA; Memphis; North Baltimore, OH; Rossville, TN and San Antonio. The decrease of new construction and the demand expected to be generated by these expanded and new intermodal hubs are critical components of the logistics market’s return to health, according to Grubb & Ellis researchers.