"As the economy recovers from recession, industrial markets are likely to recover first," said Maria T. Sicola, Senior Managing Director of Research for Cushman & Wakefield, in a company report released Tuesday.
John McManus, a director at the firm's Oakland office, believes that the teardowns of industrial product and conversion to office space and residential product over the past five years, combined with lack of available land for new construction, has helped to soften the blow of the economic downturn in the San Francisco East Bay area.
"We've been seeing more broker incentives offered -- longer vacancies, and reductions in asking rates and rental rates in the deals being done. There hasn't been a lot of industrial construction in the Bay Area for years. Most of the available land went to office and residential," he said.
McManus expects absorption of industrial product to be negative for the first quarter of 2002, but he also believes the area is ready for a rebound due to demand that has been pent up since September 11. And if recent activity is any indication, that demand may be forthcoming soon.
"We have seen increased tour activity from tenants in the past 30 days, and with land constrained in the market limiting the supply, when it does occur the recovery will be strong," he said. "When it does come back, the industrial markets will certainly come back first because we don't have as nearly as much space in percentage terms as office. I suspect the turnaround should be fairly quick."
However, the damage caused by the recession has been more severe the closer one gets to San Jose and the San Francisco Peninsula areas. According to a year-end Cushman & Wakefield report, available warehouse/distribution center product in San Jose increased from 2.5 million sf between 1998 and 2000, to 7.5 million sf by the end of 2001. And rents for high-tech industrial buildings in the area had fallen dramatically from $4.26 per sf per month during the fourth quarter of 2000, to $1.96 per sf per month by the fourth quarter of last year.
In the San Francisco Peninsula area industrial space leased hit a five-year low to 2.4 million sf, and asking rental rates have taken a nosedive from $4.75 per sf per month at year-end 2000 to $2.05 per sf per month by year-end 2001.
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