BOSTON-According to CB Richard Ellis' Econometric Advisors forecast, the industrial market will see national availability peak at 14.2% by the end of 3Q10. However, the fourth quarter will begin availability's decline, eventually dropping almost a full percentage point lower by this time next year. Notably, industrial markets in the hardest hit areas of the housing crisis are ticking up; areas such as California, Florida and Nevada.
"What drove the warehouse demand were things like furniture and construction materials," explains Luciana Suran, economist, CBRE-EA. This led to poor performance in those markets warehouse space as those housing necessities declined with the bottoming market. "In the past two quarters, we've started to see demand in some of the major markets in those areas," Suran tells GlobeSt.com. "Los Angeles for example, has seen positive demand."
This isn’t to say the market is rocketing back to health. Some of the lesser-affected areas, such as Indianapolis, never truly had a downturn for their industrial markets, since the housing crisis did not hit a fevered pitch; so the health in these areas are to be taken with a grain of salt. "They're not coming out of this very strongly," she explains. "It's really a slow climb."
Many of the class B and C markets are still suffering as consolidation made it more affordable to move for a nominal price into more modern class A product. Larger spaces also excelled, as larger facilities were in more demand thanks to companies performing reorganizations accounting for space and economic efficiency. "Class A space, built within the last few years, within a certain size range (larger), didn't really experience any negative demand as measured by net absorption during the recession," Suran says.
And as the sector begins to look up, investors will take note, since industrial tends to be a more stable investment than some of its more glamorous counterparts. "The lease lengths are pretty long," Suran points out. "So you don't see huge movements from year to year." This also helps when looking forward at the upcoming FASB accounting changes, which has other sectors concerned. "A warehouse is a warehouse," she says. "It doesn't take as much of an investment from a company as asay an office, so we're not expecting to see a huge reaction from the accounting changes." Simple put, offices on every level are more expensive; from build-outs to square-footage, everything jumps in price comparatively.
As far as it's other investment qualities, industrial was able to sustain a higher availability throughout the recession by being more nimble construction-wise. Suran notes how quickly construction is able to stop, since a typical project takes only four to nine months creating a shorter pipeline to hold up when a recession rears its head. The growing global economy is also a strong advantage over other sectors, she explains.
"If this economy is not doing well, we see other economies grow faster, which is what we're seeing now…exports driven markets perform better," she explains. "Other property types don't have that linkage to the global economy."
Suran also points out that moving forward, markets with ecommerce space are going to be the first out of the box. The ecommerce markets are coming back faster than other retail and the industrial space which is linked to them will in turn will swiftly have a rising value.
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