National Industrial Market Trends Overview


October 3, 2008

By Danielle Hale – National Association of REALTORS

Industrial sector completions in the first half of 2008 were a robust 79 million square feet, essentially unchanged from completions in the first half of 2007. Furthermore, this year’s first half completions exceed first half completions for 2003-2005. The supply side of the industrial sector is therefore abundant.

By contrast, net absorption, the primary measure of demand, turned negative in the first two quarters of 2008. Because net absorption has not kept pace with the industrial space coming online, the vacancy rate has risen to over 10 percent.

Net absorption is expected improve to 14.6 million square feet this quarter on the strength of vigorous exports, but completions are also projected to continue to grow. Expected industrial completion for the third quarter is 47 million square feet, an increase of 8.9 percent over what was finished in the third quarter of 2007.

Because completions are outpacing absorption, the vacancy rate is expected to rise further to 10.5% in the third quarter 2008. Flush supply and a rising vacancy rate make it difficult to extract more income from properties. For this reason, rent growth is projected to be flat, at zero percent, for the third quarter 2008. As completions continue to outpace net absorption, vacancy rates will rise and downward pressure will build on rents. They are expected to decline by around 0.3 percent in the last quarter of 2008 and first quarter of 2009.



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