Only tenants with lapsing leases and developers already in the ground appear to be cutting deals these days, while building owners are busy trying to keep lease rates from falling. Still, with overbuilding not the problem it was last time around, the mood is generally upbeat, as many industrial brokers predict a turnaround by the end of the year.

GlobeSt.com's Southwest bureau chief Connie Gore reports that the Texas industrial market is flexing its muscle as a strategically located hub, but deals still have been slow in coming. Prospective space takers, say the brokers, are jittery about the US economy and possible forced consolidations to hold onto profit margins. The Dallas-Ft. Worth region hasn't been hit like Austin, where sublease space seems to grow larger each day due to high-tech cuts. Still, the value-office or office-flex market in the state capital isn't as hard hit as class-A office, says Greg Johnson, vice president of leasing for Transwestern Commercial Services' Austin office.

Johnson says the prognosis for Austin is that "things will smooth out by the end of the year." In nearby San Antonio, everybody's talking about bringing new projects out of the ground, but there's been very little action, says John Turcotte, partner and industrial services director for San Antonio-based Reoc Partners Ltd. In 1999, 1.4 million sf had come on line and most of it's been absorbed, but the pipeline is practically dry right now for new supply, he says.

Suffice to say, a case of the jitters still prevails as many prospective tenants flinch about signing final contracts, at least for now, says John Lancaster, vice president of TIG Real Estate Services in Dallas.

Up in Oregon, the situation isn't much different, according to the brokers who recently won the leasing assignment for the 4.8-million-sf industrial portfolio Rreef is acquiring from Spieker Properties. There's not a lot of new construction of any product and the number of showings on listings are down, but there are still good signs out there.

"The fact that there are fewer people viewing properties is offset by the fact that the people left are very serious," says Ted Nicholson, a CB Richard Ellis broker who with Marty Horeis is handling leasing for Rreef's Westside Portland portfolio. "And land prices have still gone up, hitting $4.50 to $6 per sf for flex product in the Sunset Corridor."

Currently in Portland, industrial vacancy stands at around 5%, according to CBRE. If you include only buildings about 20,000 sf or larger, that number has grown from about 6% to 8% or 9%, according to Cushman & Wakefield's Tony Reser, who with partner Ben Peterson won the leasing assignment for Rreef's Eastside portfolio.

The Portland industrial market saw 418,000 sf of net absorption in the first quarter, created by strong leasing in the flex-office category, while warehouse and distribution saw negative absorption due to an increase in sublease space, says Nicholson. "Over the next several months, vacancy rates will trend upward and, therefore, lease rates will track somewhere between flat and down slightly due to increased concessions," he predicts.

As a result, says Reser, "in the short run there are some opportunities for tenants to take down sublease space at favorable rates. But when that market turns and that space is absorbed (in six to nine months), it will once again become an owner's market because of a lack of new construction."

Northeast bureau chief Amy Vaughn reports that Paul Cohen, executive vice president of SWBE Inc., is nothing but upbeat about the region. Cohen says that despite the apparent slowdown, business is still solid and investors are confident in the future of industrial properties. "[Deal] prospects have not dropped off as much as one might suspect," says Cohen. "Typically industrial is the last to get into trouble and the last to get out, but right now things are all right and confidence is strong."

Cohen says investment firms are still exhibiting faith in industrial and that while technology-related properties are coming back on the market, and larger properties are becoming available, they are still finding eager tenants to take them. As a result, Cohen says the value of industrial has not fallen due to dot-com failures and manufacturing layoffs.

"When things get bad, one sees a lot of bottom-fishing out there--looking for big discounts and capitalizing on decreased value and higher vacancies--but I haven't seen that out there now," says Cohen. "We talk to our friendly competition and they're busy too. Things are better than people might expect."

Southeast bureau chief Alex Finkelstein reports that when the economy ratchets up again, new trends will be surfacing in Central Florida's 92.6 million-sf industrial real estate market. Realvest Partners Inc. founder and president George D. Livingston tells GlobeSt.com there will be fewer but larger distribution centers as the consolidation wave takes hold among warehouse communities, as it has in other industries.

"We will see more third-party logistics companies running logistics chains," Livingston says, adding that "value (flex) office space will be in demand." Broadband access and location will be the driving factors behind this trend, he says.

In the Midwest market, Columbus, OH-based Pizzuti Cos. vice president of sales and leasing Bill Baumgardner tells bureau chief Mark Ruda that one trend is clear: "Activity is very strong with the big-box users--500,000-sf or more. The strength of that area has been very good, and the quality of the companies looking has been very good."

Bottom-fishing and hesitation aside, the economic slide has had only a spotty effect on the nation's industrial market, it seems. Given that, Greg Johnson's prediction that things will smooth out by the end of the year might come true. But here too a bit of caution might be necessary, and we nod to the ongoing truth that all bets are off should the economic stall not lift in time.

Instant Insights /

BIG PICTURE: Industrial Developers Wait on Sidelines for Rebound

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