Negative Industrial Market Trends Continue

CHICAGO-Jones Lang LaSalle released its Q2 report in September, nearly a month after the other major commercial real estate service firms, but its conclusions are much the same as the earlier reports: demand for warehouse and logistics space eroded at an accelerated pace in the quarter as occupancy losses piled up in the wake of consolidations, closures and space give-backs. According to Josh Gelormini, JLL vice president for capital markets research, the situation has not only failed to improve in Q3 but worsened.

“The summer has not brought any appreciable increase in industrial real estate activity,” he tells GlobeSt.com. “In fact, the latest data I’ve seen shows just the opposite seems to be true. Sales transaction volume actually is decreasing quarter-over-quarter as of early September.” By contrast, he says, the office sector is seeing a measured pick-up, albeit from a very low base of activityin Q1 and Q2, while apartment transaction activity appears roughly in-line with Q2.

The Q2 industrial report pegs overall vacancies at 9.4%, 180 basis points above the cyclical low achieved in 2007. Significantly, the vacancy rate for investor-owned property soared to 12.5%, 100 basis points higher than the Q1 figure, indicating that corporate-owned product is faring better. Some 90% of local markets reported a rise in vacancy in Q2, and only eight markets showed positive absorption equivalanent to 1.5% of existing inventory. According to the report, the top 10 to 15 markets accounted for more than half the total overally vacancy decline.

As would be expected in a period of rising vacancies, rents have declined. While asking rates dropped only 1.6% in the quarter, JLL estimates effective rates sustained a much greater hit. The report says discounts as large as 25% below the quoted asking rate are not uncommon. Gelormini says this trend also appears to have continued into Q3.