Market, Class A vacancy fall to record low; Class A rents grow
VACANCY AT RECORD LOWS, MARKET REMAINS ACTIVE
Q4 2018 net absorption increased by 190,000 sq. ft. since Q3 2018 and by 720,000 sq. ft. compared to Q4 2017, when absorption was negative. Market-wide vacancy rates fell from 4.5% in Q3 2018 and 5.1% in Q4 2017, to 3.6%. This marked a new low that was 80 basis points below the previous record set in Q3 2017.
Although all delivered speculative (spec) projects over the past few years have been Class A product, vacancy has consistently trended downward. Class A vacancy decreased significantly, falling by 150 basis points (bps) quarterly and 310 bps annually. Class A product continues to drive demand for space in the Juarez industrial market. During 2018, it accounted for 78% of total activity and 91% of positive net absorption.
MARKET RENTS SLIP, CLASS A AT NEW HIGH
Market-wide average asking rents decreased by $0.09 per sq. ft. since last quarter and by $0.12 per sq. ft. compared to Q4 2017. This decline was caused by the increasing portion of available space that is Class B and strong Class A activity. Class B now accounts for 71% of all availability while Class A makes up 19%.
Strong demand and insufficient supply has put upward pressure on Class A asking rents, pushing them above the pre-recession high of $5.10 per sq. ft. Rents rose by $0.03 per sq. ft. quarter-over-quarter and by $0.10 per sq. ft. year-over-year.
DEMAND STRENGTHENS, SUPPLY REMAINS LIMITED
CBRE tracks user demand for space in the Juarez
Industrial Market, which declined since Q3 2018 but remained above the 31-quarter trailing average. Q4 2018 closed with users seeking 2.6 million sq. ft. of space, 110,000 sq. ft. more than total vacant sq. ft. in the market and three times available Class A space. New construction and deliveries in 2018 and mid-2019, will help offset scarcity of space. Of the four spec projects delivered during 2018, three are fully leased and one remains vacant, a new 147,000 sq. ft. building delivered to the Southeast submarket in Q4 2018. Five new specs and an expansion, 742,000 sq. ft. total, began moving dirt in the Southeast submarket during the quarter. 2018 ended with 1.5 million sq. ft. of spec under construction, 20% of which has been, or will likely be, pre-leased before its completion.