Vacancy remained lowest in Los Angeles County, but Oakland, CA; Wichita, KS; Long Island, NY; and Madison, WI also ended the year with sub-5 percent rates. Southwest Michigan (the Kalamazoo area) posted the highest vacancy rate at 19.5% and also suffered by far the steepest annual vacancy drop, falling 12.5 points in 12 months. California's Inland Empire recorded the sharpest increase in annual vacancy, doubling from 4.6% in January to 9.8% in December.
Quarterly net absorption slipped below zero for the first time in nearly seven years, totaling 431,000 square feet. Annual absorption totaled nearly 50 million square feet, down from 173 million square feet in 2007. The Greater Philadelphia market absorbed 9 million square feet in '08, dethroning second-place Inland Empire, which had taken the top spot for the past four years running.
Space under construction plummeted to 72 million square feet at year-end, the lowest level in 4 ½ years. Houston, Dallas and the Inland Empire each had just over 8 million square feet still in the pipeline.
The average asking rental rate for all types of industrial space at the end of '08 was $5.71 per square foot per year, triple net. This was a decline of 4 cents over the prior quarter and 16 cents over the prior four quarters. On a percentage basis, asking rents dropped 1.7% for warehouse/distribution space and 3.6% for R&D/flex space in '08.
In regard to the current year, the report says low consumer spending, prolonged struggles in the manufacturing and construction industries and shrinking global trade will continue to exact a toll on demand. Even so, it notes the industrial market seems to be holding up better than the office market, because businesses look at industrial space as a productivity enhancer and an integral part of their supply chain strategies. Grubb predicts the relentless quest for cost-saving efficiencies will put a floor under demand for industrial space, even in a weak economy. The company expects vacancy to end the year around 9.5% as the construction pipeline empties out, with rents under downward pressure.
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