If You Build It Will They Come?

It’s true that industrial leasing is up 25.6% from last year. But remember that last year’s activity was weak at only 230.8 msf, well below the 10-year average of 305.5 msf. Decreased demand and a lack of financing for development have resulted in extremely low construction levels of industrial product.

Through mid-year 2010, just over 8 msf has been delivered and the majority of that on a build -to -suit (BTS) basis. The actual ratio of BTS to speculative (spec) development this year is greater than 2:1. This is a complete reversal of the historical trend tracked by Cushman & Wakefield back to 1995 that shows spec outpacing BTS by 2.5:1, annually.

Industrial construction activity

Is this the result of the deep recession or is it a transformative change in the industry? Check out Jim Dieter’s blog ; he has some thoughts on this as well as the impact the dearth of development has on tenants and landlords.

On the investment front, sales activity has also been stronger year over year by about 32%, particularly for flex product. The theme is a familiar one in terms of what’s attractive: core assets in primary markets especially coastal locations. Metro markets which have seen the most activity are New York, DC, San Francisco, Los Angeles, Boston and the only one without an ocean port in the mix – Chicago.

Next time, I will talk about leasing and where it’s occurring to connect the fundamentals of supply and demand along with an outlook.

Maria Sicola,
Americas Research Group,
San Francisco, California

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