How Does Southeast Fit Into US Industrial?

MIAMI—It's a good time to be in the industrial market. The US industrial vacancy rate dropped to its lowest level in more than a decade during the third quarter of 2014, according to Cushman & Wakefield's latest report. Coupled with historically low supply, significant space absorption is driving strong rent growth in most major industrial hubs.

“Continued economic recovery, the evolution of e-commerce and a resurgence in domestic manufacturing have infused resiliency into the market for industrial space,” says CushWake's John Morris, leader of industrial services for the Americas. “Our sector continues to expand faster than other property classes, fueled by shifting consumer demand and retail service paradigms, and global growth dynamics.”

During the third quarter, the overall national industrial vacancy rate dropped to 7%. That's 80 basis points lower than one year ago. Three of the 38 markets tracked CushWake tracks recorded vacancy rates under 4%, including California's San Francisco Peninsula (3.5%), Greater Los Angeles (3.8%) and Orange County (3.8%).

“Robust demand has led to 255.2 million square feet of leasing activity year-to-date, which is about the same level as a year ago and on track to surpass last year's total,” Morris says. All told, 16 markets posted increased activity year-over-year. Eleven markets showed double-digit gains, led by Atlanta and Central New Jersey, where leasing volume was up 32.3% and 25.2% year-over-year, respectively.

Morris says the market is on pace to surpass last year's total as demand from both traditional and online retailers is putting a strain on the supply of available class A logistics product. This, in turn, is resulting in substantial rental growth. He says average industrial direct asking rent in the US is up 6.2% from a year ago to $6.21 per square foot.

Morris goes on to say that spec building now accounts for 63% of the 99.9 million square feet currently under construction in the US. Developers are responding to both current and anticipated demand, he notes, as spec had dropped to about half the pipeline earlier in the year.

In Florida, Bridge Development is underway with a number of spec industrial buildings. I recently wrote about this in an article called Why Bridge Keeps Betting on Industrial Spec. Bill Waxman, executive vice president of CBRE's Global Port Logistics Group, tells GlobeSt.com Miami is a hot spot for industrial development, and also pointed to Atlanta.

“The Atlanta market has completely turned around and is doing very well, providing the southeast region with a key industrial asset,” Waxman says. “The overall state of the industrial market has continually improved since last year, though national asking rents are about the same. There hasn't been a spike improvement but, rather, slow and steady improvement in leasing demand, development, and investment.”