SANTA ANA, CA-Despite the fact the US industrial vacancy rate reached a 15-year high at the end of September, the Q3 report from Grubb & Ellis finds good news underlying the bad. Though vacancies advanced to 10.4%, the firm's researchers say the 30-basis-point rate of increase was well below the Q1 and Q2 advances of 70 and 60 basis points, respectively.
According to the report, vacancy was lowest in Los Angeles County at 3.2%, though an availability rate of 8.7% suggests vacancy is poised to rise as leases expire. Vacancy was highest at 15.2% in Phoenix, a region hit hard by the housing slump and job losses.
In other findings, the report says absorption was sharply negative for a third consecutive quarter, with tenants vacating 32.3 million square feet. Still, this was an improvement from Q1 and Q2 totals of -39.8 million square feet and -51.7 million square feet, respectively. In addition, 11 of the 56 markets tracked recorded positive absorption. The Greater Philadelphia region, encompassing Central and Eastern Pennsylvania, had the highest level of positive absorption at 523,000 square feet, while Northern and Central New Jersey had the most negative absorption at -3.8 million square feet. The latter figure, however, marked a vast improvement over the -9 million square feet in Q2.
According to the report, deliveries were at their lowest level of the decade at just 7.1 million square feet, while space under construction plunged to 24 million square feet, the lowest level since the mid-1990s. Greater Philadelphia led all markets with 2.6 million square feet remaining in the pipeline, down from a recent peak of 9.5 million square feet in Q3 '08.
The average asking rent for all types of industrial space declined 6.7% from the same period last year to $5.34 a square foot per year, triple net, while the average effective rental rate for industrial space year-to-date declined 12%.