Recovery Signs in Distribution Warehouse Industry

Written by Global Perspectives, ProLogis, and Lisa Benston

Industrial Distribution Warehouses are finally showing signs of recovery, with increased demand, lower supplies and expectations of rising rentals.

ProLogis released a new research report on the state of the industrial property markets in the United States and Canada. The report is based on market statistics compiled from a variety of sources, including ProLogis market officers, brokerage companies and data providers. The information covers the top 31 distribution property markets in the United States and Canada during the first half of 2010.

"By midyear 2010 the nation's distribution property leasing markets were finally showing signs of recovery," commented Leonard Sahling, first vice president of the ProLogis Research Group. "With the U.S. economy on the mend and with very little new supply in the pipeline, the stage is set for a continuing recovery in the nation's distribution property leasing markets."

Detailed findings in the report include the following:

• The overall vacancy rate for bulk distribution space across the top markets edged down to 10.2 percent during the second quarter of 2010 from 10.4 percent in the first quarter of 2010, after having been virtually flat during the two previous quarters.
• Total occupied space (realized demand) climbed 15 million square feet during the second quarter of 2010, a modest 0.2 percent increase, but still well above the tiny gains posted in the previous two quarters.
• Asking rents in the major markets slipped 1.6 percent on average in the second quarter of 2010, their ninth consecutive quarterly decline. Asking rents are now 18.4 percent below their cyclical peak in the first quarter of 2008.
• New completions are on track to set a new record low in 2010. What few new starts there are consist almost exclusively of build-to-suit projects for specific customers.
• In view of the mounting losses on their commercial real estate construction loan portfolios, it is doubtful that U.S. banks will be willing to provide construction financing for new commercial real estate projects for the next several years.
• Looking ahead, some real estate analysts are contemplating the possibility of rent spikes within the distribution property markets in 2012 or 2013.