The "availability" rate for U.S. industrial real estate declined last quarter to its lowest point since 2000 as demand for warehouses, distribution centers and other industrial property continues to outpace supply, according to a report published today by real estate services giant CBRE.
The availability index, which is the sum of the quantity of vacant space plus space currently occupied by a tenant whose lease is expiring and being marketed for use by the incoming tenant, fell to 7.2 percent in the quarter. This is the measure's 32ndconsecutive quarterly decline, the longest drop since CBRE began tracking the measure 30 years ago, it said.
The company considers industrial availability figures to be a more accurate and inclusive depiction of the U.S. market. Many reports instead use vacancy rates as the "headline number" to illustrate market conditions. Availability and vacancy rates can differ by as much as 200 basis points, CBRE said. Vacancy rates nationwide are hovering around 5 percent, though they could be as low as 2 to 3 percent in high-demand markets like the Los Angeles basin.
In the second quarter, 39 U.S. markets posted declines in industrial availability from the first quarter, 21 markets reported increases, and four remained unchanged, according to CBRE data. The largest declines were registered in New Haven, Tucson, Sacramento, and Jacksonville. The biggest increases were in Pittsburgh, Louisville, and Allentown, Pa., CBRE said.
CBRE expects the pattern of declines to flatten out over time because the amount by which demand exceeded supply narrowed to 22 million square feet in the 12 months ended in June from 65 million square feet during the prior period.
Overall, warehouse and distribution center demand remains solid and balanced, spurred by continued strength in e-commerce fulfillment and a relatively broad economic rebound, CBRE said. "Net absorption" across the 55 markets tracked by the company hit 59 million square feet in the quarter. Net absorption is calculated by taking the occupied square footage at the end of a period, subtracting the occupied amount at the start of that period, and factoring in levels of vacated and newly constructed space.
The company said that adverse developments concerning trade policy could impact the industrial segment. ProLogis, a big industrial developer, made similar comments in a report issued today, saying exposure to trade sanctions would be concentrated in big U.S. consumption markets where industrial demand is especially strong.
ProLogis emphasized that logistics real estate is more impacted by U.S. economic conditions and supply-demand factors than by trade relations. It would take a material deterioration of trade conditions for the industrial sector to be affected, it added.