VACANCY AT NEW LOWS, ABSORPTION CONTINUES
The McAllen Industrial Market registered positive net absorption for Q3 2019 despite dwindling availability and a lack of speculative development. Additionally, 2019 Q3 year-to-date net absorption was higher than the combined 2017 and 2018 Q3 year-to-date net absorption. The quarter closed with 140,000 sq. ft. of gross absorption through five new leases.
Quarter-over-quarter, the market-wide vacancy rate dipped by 30 basis points (bps) and fell from 2.8% in Q3 2018 to 1.3%, a new record low. The Class A vacancy rate declined by 70 bps quarterly and by 40 bps annually. Class A product closed the quarter with a vacancy at 2.0%, the lowest Class A vacancy rate seen since CBRE began tracking the market.
RENTS BALANCE AS SUPPLY IS DEPLETED
CBRE tracks user demand for space in the McAllen Industrial Market, which increased compared to Q2 2019 and stood above the 20-quarter trailing average. The quarter closed with users seeking 1.7 million sq. ft. of space. This is 590,000 sq. ft. more than total available space and more than five times total vacant space in the market. Taking into account user minimum space requirements and property type needs, current market availability could meet, at most, 52%, or 890,000 sq. ft., of Q3 2019 user demand.
As the market continues to see low vacancy rates and strong demand, annual asking rents have seen upward pressure since the beginning of 2018. With few speculative developments and a preference for Class A space, remaining availability in the market was comprised of lower-priced Class A and Class B product. The market-wide, Class A and Class B warehouse and manufacturing asking rates fell quarter-over-quarter but remained at historically high levels. Year-over-year, Class A asking rents grew by $0.23 per sq. ft, Class B by $0.50 per sq. ft., and the market-wide rate grew by $0.56 per sq. ft.