"The real issue with industrial product is that the markets are fundamentally in such good shape that everybody's happy holding," says Cary Krier, senior vice president in JLL's industrial services group in Dallas. "That's dried up all the liquidity. Even if you want to buy, it's hard to find a seller. Everybody's paying the rent and doing well."

According to Krier, a major factor behind the strong fundamentals is the continued, and somewhat surprising, strength of the retail industry. Though he acknowledges there are some signs of tapering, he says retail is doing much better than many people realize and certainly much better than analysts predicted. "You go through these warehouses, and people are still ordering and hiring," he remarks. "I don't know if they're just reluctant to lay off people or what. But nobody's giving back space. We don't have a lot of sublease space creating a shadow inventory."

Manufacturers are also doing well, he adds, largely due to the decline in the dollar making US goods more competitive in terms of price both at home and abroad.

At the same time, Krier continues, few large new leases are being signed. While the absence of big leases is holding back absorption, he believes the moderate pace of new construction and deliveries keeps vacancy rates from rising significantly. "Dallas, the Inland Empire and Atlanta all have pockets where they have pretty good size spec buildings sitting empty, but in general there's not a lot of new projects coming out of the ground. Basically, it's just a slow grind that's keeping everything in balance," he says.

Despite the positive scenario, Krier tells GlobeSt.com he can't help but assume there are problems on the horizon. As he puts it, "We're still early, I think. This is going to be a tough year, but the situation just hasn't hit home yet." He expects it will hit home, however, creating a financial pinch for some owners. Once they feel the pinch, he says, they will start bringing product to market, accelerating the pace of investment. "Until there's some pain on the part of sellers, they're not going to do anything. But once they start losing tenants, there will be a change," he ventures.

An ancillary issue resulting from the lack of activity, Krier points out, is the uncertainty it creates regarding value. "Nobody really knows what the prices should be," he observes. "Given the lack of certainty and the tight credit market, many owners elect to do nothing rather than actively market their properties."

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Solid Fundamentals Contribute to Slow Industrial Sales

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