US Industrial Property Market Trends, Q2 2009
According to the NAR/TWR data, the US industrial real estate market continued registering rising vacancy rates and declining rents in the three months to June 2009. In response to the rapidly deteriorating market conditions, industrial space completions declined to 16.15 million square feet, representing a 33.3% decrease compared to the 24.2 million square feet of industrial space that were completed in the previous quarter. It should be noted that industrial space completions in the first quarter of 2009 were 58% lower compared to the 57.3 million square feet of industrial space that were completed in the fourth quarter of 2008. On the demand side, net absorption (change in occupied stock) of industrial space continued to be negative at 80.3 million square feet, 10% less negative than the net absorption of -89.9 million square feet registered in the first quarter of this year, but significantly higher than the negative absorption of 5.6 million square feet registered in the fourth quarter of 2008. Total net absorption of industrial space for 2008 was negative 57.24 million square feet. With increasing supply of industrial space and rapidly dropping demand, the industrial property market vacancy rate in the US increased by 80 basis points during the quarter, as it climbed to 13% from 12.2% in the first quarter of 2009. The industrial vacancy rate increased by 1.9 percentage points in the first six months of 2009, compared to the vacancy rate of 11.1% that prevailed in the fourth quarter of 2008. Note that in 2008, the US national industrial vacancy rate averaged 10.4%, according to the NAR/TWR data. With rising vacancy rates and negative net absorption industrial property rents continued to decline. In particular, according to the NAR/TWR data, industrial space rents in the US declined 2.6% in the second quarter of this year, which represents a deceleration compared to the 3.7% decline registered in the first quarter of 2009. During the fourth quarter of 2008, US industrial space rents had registered a minor drop of 0.8%, which is equal to the average change in industrial rents registered in 2008. The big question for industrial property investors is what is going to happen in the US industrial property market in the months ahead. Will the negative trends registered in the second quarter of 2009 continue at a stronger pace, or will they decelerate gradually in the second half of this year leading the market to stabilization and growth sometime in 2010?
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