(To read more on the industrial market, click here.)
ALEXANDRIA, VA-The Washington/Baltimore distribution submarket is likely to experience a decline in occupancy for the rest of the decade in large part due to tech advances that are compressing the demand for distribution space, according to Alexander Paul, president, Transwestern Support Group and national research director of Delta Associates. The company has just released its annual Industrial Distribution report.
Paul tells GlobeSt.com that the distribution market here is ahead of the curve in its adoption of radio frequency identification, which greatly increases warehouse/distribution operations' efficiencies and maximizes available space. "The higher level of technology is likely to lead to less demand for distribution space than there has been at the peak of previous cycles."
This trend is also materializing in other parts of the country, especially in areas in which Wal-Mart is very active such as the Midwest and south. (Wal-Mart has been a lead driver for the adoption of RFID technology among its suppliers and transport providers, he notes.). The demand for distribution space will plateau for the next four years throughout the country. Last year there was 74.8-million-sf net absorption in the distribution subsector. For 2006 the annualized total is expected to be 57.6 million. "We are expecting it to be at that level for the rest of the decade," Paul says.
Other fundamentals in the Washington/Baltimore area, though, point to stabilized activity for the distribution subsector. Rental growth is expected to be 3% this year, keeping pace with inflation. Also the expansion of cargo activity at BWI airport will continue to drive demand, Paul says. Supply, meanwhile, is also growing. "Construction activity nationally has been fairly stable--in this market, though, we are likely to see an increase in construction this year." The BWI corridor, the Dulles corridor and the 1-95 corridor in Northern Virginia in particular is poised for new supply, he says.
Also the Washington/Baltimore experienced a number of one-off vacancies this year that has temporarily affected the market. "Something similar happened in Houston recently when a number of large tenants moved for various reasons. But it was not the start of a larger trend." These include the Gap Distribution Center, which vacated 602,250 sf at 1701 Trimble Rd. in Harford County and Michelin North America Inc., which vacated 472,000 sf at 7468 Candlewood Rd. in the BWI area. Overall, Paul says, "the Washington/Baltimore distribution market is a healthy one."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
