US industrial property market on recovery path

The pick-up in US leasing activity, which started in late summer last year, is expected to reduce the industrial vacancy rate by early 2011. (GETTY IMAGES)

After one of the worst years in decades, the industrial property market is slowly regaining its footing.

Companies are beginning to stock up on goods again after holding back in the past two years.

That has helped re-ignite demand for warehouse and manufacturing space, particularly around major seaports and other trade hubs.

The trend is a good sign for the economy because it signals executives are more optimistic about their business prospects. And when companies expand, they often increase hiring.

The pick-up in leasing activity, which started in late summer, should begin to reduce the industrial vacancy rate and stem rent declines by early next year, experts say.

Major cargo hubs such as Los Angeles, Seattle, Kansas City, Houston and Dallas are expected to bounce out of the slump faster than other markets. While Phoenix, Chicago and Detroit are among the cities projected to lag. "The worst has passed," says Craig Meyer, a Managing Director for Jones Lang LaSalle in El Segundo, California. "We're clearly at the bottom looking up."

The US vacancy rate for industrial properties hit 10.3 per cent at the end of last year, according to the real estate services company.

While that is the highest level in decades, new deals are happening in cities like Los Angeles, Houston, Philadelphia and Oakland, California.

Last month, Aaron Metals, bought a 100,376 square-foot building near Oakland for about $4.5 million (Dh16.51m).

The company, which recycles metals, initially looked into buying more space back in 2007. Then its sales took a hit as the economy tanked.

Now commodity prices are rising and things are looking up.

"Fortunately, we were able to survive and we still need the space," said Jesykah Forkash, Facility Manager.

The glut of industrial property has forced many landlords to lower rents in order to court tenants. The average rent for industrial space fell about seven per cent in the last three months of 2009 compared to the prior-year period, but was off just two per cent from the third quarter, according to Jones Lang LaSalle.

In the South Bay region around the ports of Los Angeles and Long Beach, sales and leasing activity for industrial properties began rising last summer and are now running at about double compared with a year ago, said Chuck Littell, associate vice president of Colliers International in Torrance, California.

"The companies that have survived are much more confident about expanding," said Littell.


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