Top 10 Logistics Markets Show Wide Variation

SANTA ANA, CA-The top 10 US logistics markets showed considerable variation in performance in Q2, according to data from Grubb & Ellis, with vacancy rates below 10% in Los Angeles, Pittsburgh and Southern New Jersey but near or above 20% in Columbus, OH and Northern and Central New Jersey. Reaching beyond the top 10, the highest vacancy levels were recorded in Phoenix at 31.2% and Detroit at 26.2%. Markets with enviably health rates under 7% included Los Angeles, Pittsburgh, Oakland, CA, Orange County, CA and Minneapolis. Greenville, SC had the absolute lowest at 5.1%. The US average was 16.9%.
1. Chicago: Overall vacancies have dropped marginally from the peak of 15% reached in Q1, Overbuilding of spec space has left Will County, the primary location for unloading international containers arriving via the Burlington Northern Santa Fe Railroad, struggling to fill more than 31 completed warehouses with 11+ million square feet vacant. The average rent was $4.30 a square foot.
2. Atlanta: Large companies continue to be drawn to this market because they can easily manage their supply chain. General Mills Corp. recently announced plans to invest $42 million in a 1.5 million-square-foot facility in northeast Atlanta, while JM Smucker Co. leased a 600,000-square-foot facility in South Atlanta. Nonetheless, the vacancy rate is uncomfortably high at 16.7%. On the other hand, rents are comparatively low at $3.29 a square foot.
3. Inland Empire, CA: Tenant opportunities exist with 3PLs, as several national retailers strive to render their distribution networks more efficient. Kenco Logistics Services, the 3PL for a major cereal manufacturer, recently leased 517,346 square feet in Redland. A vacancy rate of 15.7% has kept rents from rising above $4.07 a square foot.
4. Dallas-Fort Worth: Developers delivered more than 14 million square feet of warehouse space within the past year. Coupled with a drop in demand, the surge of new construction has led to a growing supply of space and driven vacancies to 20.7% and pushed rents down to $3.68 a square foot. At the same time, the large number of empty buildings makes it easy to accommodate distribution companies relocating to the area.
5. East & Central Pennsylvania: In the Philadelphia area, more than 700,000 square feet of negative absorption in the first half combined with robust development activity has left an oversaturated market. Landlords have become aggressive in their attempts to win the deals in a market comprised largely of food-service firms. Around Pittsburgh, efforts by local economic development groups to build the region's logistics infrastructure and get it on the radar screen of logistics companies have begun to pay off. High vacancies in Philly and lower levels in Pittsburgh combine for an overall vacancy rate of 16.3%. The average rent is comparatively high at $4.24 a square foot.
6. Los Angeles: The latest figures from the ports of Los Angeles and Long Beach indicate inbound cargo volumes are down 22% from last year, significantly reducing demand for logistics space. Nonetheless, vacancies are remarkably low compared to the rest of the nation at only 5.3%, while rents remain elevated at $6.47 a square foot.
7. New Jersey: Downsizing of corporate distribution operations left nearly 4.8 million square feet vacant in Q2 in North & Central NJ, resulting in a disturbingly high vacancy rate of 23.6%. On the positive side, less than 200,000 square feet of warehousing is being developed, compared with nearly 1.9 million square feet at mid-2008. In Southern NJ, vacancies are relatively low at 9.5% and will most likely dip below that mark by December, allowing landlords to maintain some level of control in tenant negotiations. Rents average $4.63 a square foot. Two build-to-suit projects currently under way will generate positive absorption by year-end.
8. Houston: With slow leasing activity and developers finding it difficult to obtain financing, space under construction has subsided considerably. Unfortunately, the slowdown did not prevent vacancies from reaching 18.2%. Rents of $4.88 a square foot are substantially higher than in Dallas. Agility Project Logistics Inc. will be consolidating its Houston offices and warehouse services into a new location near Bush Intercontinental Airport that includes 50,000 square feet of office for approximately 300 employees, more than 200,000 square feet of warehouse space and a larger secure cargo area.
9. Columbus: The Class A vacancy rate increased 420 basis points from a year-end rate of 15.3% to a current rate of 19.5%. The trend will continue until at least the end of '09. The average rent is only $3.18 a square foot.
10. Baltimore: Access to the Port of Baltimore combined with proximity to I-95 and the rail system drive the logistics market here. Volatile fuel costs and the recession are causing more companies to focus on efficiency, but vacancies are comparatively low at 11.9%, while rents are relatively high at $4.82 a square foot.