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Home » weak year ahead for warehouses and DCs
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weak year ahead for warehouses and DCs

April 1, 2009
Mark B. Solomon
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It's not going to come as a shock, but the 2009 outlook for U.S. warehousing and distribution center property isn't looking very rosy.

According to forecasts for 58 U.S. markets issued by CBRE Torto Wheaton Research, the commercial research unit of real estate giant CB Richard Ellis Group Inc., the availability of industrial property space will increase this year compared to last. At the same time, project completions are expected to decline almost across the board. In markets that have been hit hard by the real estate downturn, the drop-off will be dramatic.

The research firm projects that available industrial space-twothirds of which consists of warehouses and DCs-will climb to 12.6 percent from 11.4 percent in 2008. Square footage completed in 2009 will decline to 66.6 million square feet from 168.9 million square feet.

The projections include eye-popping numbers for some markets. In Chicago, completions will fall to 4 million square feet from 17.3 million in 2008. In Atlanta, completions will drop to 1.25 million square feet from 5.9 million. In Phoenix, 2.3 million square feet will be completed in 2009, down from 10.6 million. And in Riverside, Calif., the downturn will reduce completions to 5.5 million square feet from nearly 25 million square feet. Not surprisingly, some of the sharpest declines are expected in markets where the real estate boom-and-bust cycle has been most pronounced.

Torto Wheaton researchers caution that the 2009 completions estimates must be put in context, noting that last year's completions figures represented the culmination of several years of rapid growth in many markets.

Stephen L. Blau, director of corporate services for NAI Mertz Corporate Services, a Mount Laurel, N.J.-based supply chain and site selection firm, says the commercial market as a whole shows no signs of stabilizing, although the industrial sector is doing better than categories like retail and hospitality. "There are still positive things happening. Buildings are being leased or sold. But the market generally is what I would call balanced on the edge of uncertainty," he says.

Blau also says the weak economy and tougher loan underwriting standards are causing a "systemic decline" in property values and may make it impossible to refinance many commercial mortgages that will be reset this year. Because commercial real estate trends tend to lag the residential side by six to 12 months, Blau says, the market is just now seeing the first wave of commercial mortgage foreclosures.

Two winners in this gloomy scenario may be renters and those with enough working capital to snap up marked-down assets. Torto Wheaton forecasts average 2009 rents in the markets surveyed will be $5.89 per square foot, down from $6.03 in 2008. As for the bottom fishers, Blau says those who have been waiting for a time to buy at the lows should be ready for action. "It's here," he says.

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Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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