U.S. Industrial Real Estate Showing Signs of Recovery

A new Jones Lang LaSalle report on industrial property offers some positive news for the second quarter of 2010: National average vacancy rates have tumbled 20 basis points for the first time in almost two years from 10.6 percent in the first quarter to 10.4 percent in the second quarter.

Although leasing activity across many markets was up, the report warns that this real estate sector is still vulnerable to mixed economic indicators, which could make sustained recovery slow or sporadic at best.

“Declining consumer confidence, the fading impact of the federal stimulus support, and worldwide economic volatility are forcing many industrial landlords, tenants, and investors to look back over their shoulders in feature of a double-dip recession,” explained Craig Meyer, SIOR managing director and leader of Jones Lang LaSalle’s logistics and industrial services group.

Despite some of the bleak news, increased corporate profits did spur industrial leasing activity in the second quarter. This was fueled by large occupiers executing significant renewal, consolidation, or relocation transactions, which helped to hamper overall vacancy rates.

According to Meyer, there “is only 11.3 million square feet of new construction in the pipeline, and 83 percent of that is pre-leased. With such low levels of new construction planned in the foreseeable future, we expect to see an increase in build-to-suit activity.”

The report, which tracked 38 key industrial U.S. markets, found that renewals still comprise a healthy share of the market demand around the country. “Many businesses are still sensitive to cost control and possible economic volatility, so we are still seeing the ‘blend and extend’ market continue,” Meyer commented. Meanwhile, the overall availability of sublease space has decreased across the country, a positive sign that demand is on the rise.

For a copy of the report, visit the Jones Lang LaSalle Web site at: www.joneslanglasalle.com.