US Industrial Market Forecast, August 2009
The NAR/TWR US industrial market forecast predicts that demand for industrial space will continue shrinking in 2010, but at a slower pace compared to 2009. More specifically, the occuppied stock is expected to decline further by an additional 112 million square feet, 63% lower than the predicted reduction in occupied stock for 2009. In response to the deteriorating market conditions, completions of new industrial space in the second half of 2009 are predicted to drop to 36 million square feet, 10.6% lower than the 40.3 million square feet completed in the first half of this year. Thus, on an annual basis, a total of 76.4 million square feet of new industrial space are expected to enter the market this year, representing a 57.4% drop compared to the 179.6 million square feet completed in 2008. Supply growth is predicted to decelerate considerably in 2010, with completions of new industrial space dropping to 48.7 million square feet, representing a 36% decline compared to the predicted completions for 2009. With rapidly deteriorating demand and increasing supply the US industrial vacancy rate, which increased from 11.1% in the fourth quarter of 2008 to 13% in the second quarter of this year, is predicted to continue rising and reach 14.2% by the end of the year. With further reduction in demand and increase in supply predicted for 2010, the US industrial market vacancy rate is predicted to continue climbing next year and average 15.1%. As a result of the deteriorating market, US industrial market rents are predicted to continue their downward path, registering decreases of 2.3% and 2.8% in the third and fourth quarter of 2009, respectively. On an annual basis, industrial rents are predicted to drop 11.4% on average in 2009, and an additional 11.7% in 2010. The NAR/TWR August 2009 industrial sector forecast portrays a deteriorating picture for the US industrial market in the next 18 months, which will be marked by negative net absorption, high vacancy rates and considerable decreases in industrial rents. However, it should be emphasized that industrial market behavior in many local markets will deviate considerably from the average national performance portrayed by this forecast. Industrial/warehouse property investors need to carefully evaluate the vacancy and rent prospects of the markets in which they operate, and appropriately incorporate such prospects in their cash flow analysis.
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