LOS ANGELES-New research from CBRE predicts that industrial demand will remain strong over the next two years, bringing industrial availability rates down to 11.2% in 2014 and 11.1% in 2015. This is a significant drop considering industrial availability rates were 11.7% in Q3 of 2013.
“International trade continues to expand, with exports 10% above their pre-recession peak,” says Jared Sullivan, CBRE Econometric Advisors senior economist. “Industrial production recently hit its pre-recession high, and we expect it will grow further as the US continues to benefit from increased international competitiveness. Inventories remain positive, which will further boost the necessity for industrial space.”
Development has yet to catch up to the rising demands for industrial space. Pre-recession, industrial development averaged 150 million square feet nationally. This year, only 59 million square feet of industrial space is expected to come online. Earlier this year, CBRE research showed that industrial development in Southern California, however, had surpassed recession levels. The Inland Empire alone has 13.9 million square feet of industrial space under construction.
“The story behind these statistics is that availability will continue to drop because absorption is picking up much faster than construction,” says Scott Marshall, CBRE executive managing director of industrial services, Americas. The market is likely still adjusting from industrial vacancy peaks in 2010, when the availability rates climbed to 14.7%.
The CBRE research anticipates the shortage to fuel rent growth, increasing 4.4% in 2014 and 4.6% in 2015. For the first time since 2006, rent growth is expected to surpass inflation. Marshall adds: “Rents fell substantially during the recession and we are only beginning to see recovery and rent growth, while interest rates and other concerns have kept a relative lid on construction in many markets.”
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Kelsi Maree Borland
