"Although there was a significant depression, the industrial market can turn around quicker than the office market because industrial buildings take six months to a year to construct, while major office buildings take at least two years," Palta reasons in a new market analysis.
The industrial sector began 2004 with an overall vacancy mark of 17.6%, up from 15.4% in 2002. Warehouse and flex space remained fairly stable but manufacturing vacancies rose to 27% from 17.6%.
Seminole County, next door to Orange County, was hardest hit, giving back 1.4 million sf to the market and winding up with a 25% overall vacancy level. Average triple-net base rents fell to $3.75 per sf for warehouse/distribution space; $4.72 per sf, manufacturing; and $8.37 per sf, flex/service space.
Southwest Orange County, the largest submarket in Central Florida, has an overall vacancy factor of 14.5%. A total 191,736 sf of new space was filled despite the addition of 293,043 sf of new product. Warehouse/distribution triple-net base rents average $3.80 per sf; manufacturing, $6.10 per sf; and flex/service, $9.52 per sf. This market led the pack with 2.5 million sf of new leases and renewals signed in 2003.
The entire industrial market saw negative absorption for the first time in four years with 367,807 sf staying dark. Palta says one reason for that predicament was that "throughout the year, tenants focused on cost cutting in order to shore up profits, meaning a geographical configuration and a change in the amount and type of space used."
Free-rent incentives from owners "started to come back to more sustainable levels," the analyst says. "Rental rates in most building types declined through the year but that trend seems to be coming to a close," Palta says. "Older class C properties are now leased, which was causing downward pressure on newer class B and A buildings."
The Colliers Arnold researcher is seeing several new trends surfacing. "Activity on the street has picked up as of late from the dormant levels seen through much of 2003," he notes. "Tenants seem to be willing to pay to move up to higher-image space. Additionally, the convention service companies are seeing an increase in activity."
New development in 2003 was limited to mostly build-to-suit projects. Only a total 250,125 sf of new construction is under way. "However, with a number of developers currently scouting the market, there should be significant new development by the end of the year, possibly the third quarter," Palta predicts.
He calls the outlook for the rest of the year "optimistic, with continued improvement in leasing and sales activity."
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