BY MARK B. SOLOMON, EXECUTIVE EDITOR – NEWS
INDUSTRIAL SPACE
specialreport
The U.S. industrial property sector
has firmly swung to a landlord’s
market. That means higher rents,
fewer concessions, and tenants
who’ll take it and like it.
The property and
the pendulum
IF CURRENT CONDITIONS IN THE U.S. INDUSTRIAL
property market were a Bruce Springsteen song, they’d be
called “Glory Days” after his 1984 classic hit. If the history
of the market were a Springsteen song, it would be a lyric
from his 2012 song “Wrecking Ball” that reads: “… And
hard times come, and hard times go …”
Few American industries have rebounded as resounding-
ly from the recent financial crisis and subsequent recession.
From 2007 through 2010, capital dried up, demand plum-
meted, speculative development vanished, and deliveries
headed toward 50-year lows. Millions of square feet sat
vacant. The turnaround, when it commenced in 2011, was
somewhat halting. But it picked up speed in 2012, coin-
ciding with demand for large-scale buildings to support
the burgeoning e-commerce trade, and the market has not
looked back.
“Net absorption,” which compares occupancy rates at
the beginning and end of each reporting period—factoring
in vacancies and new construction during the period—has
been in positive territory for 20 consecutive quarters as of
this writing. The nationwide occupancy rate, which ended
last year at about 6. 9 percent, could fall during 2015 to near
6 percent, which would be a multiyear low. JLL Inc. (
formerly Jones Lang LaSalle), a real estate and logistics services
firm, said that 15 of the top 50 U.S. markets it regularly
surveys are already reporting vacancy rates below 6 percent.
Vacancy rates in California’s Inland Empire, the vast
warehousing and distribution center complex 120 miles
east of Los Angeles, sit at 5. 3 percent, compared with close
to 20 percent at the worst of the downturn, according to
JLL. The rate in the high-demand, capacity-constrained
Southern California port area is hovering around 2 percent.
Vacancies in Pennsylvania’s Lehigh Valley, the gateway for
goods moving into the Northeast and swaths of the Mid-Atlantic, are at 3 percent, an all-time low, according to
CBRE Brokerage Services, a commercial brokerage firm.
About 90 miles to the south in Carlisle, Pa., a regional node
serving the Mid-Atlantic to the Carolinas, vacancy rates are
at 5. 8 percent, according to CBRE.
In 2014, the Eastern and Central Pennsylvania markets—
which total 216 million square feet and where goods can
reach 40 percent of the U.S. population in one day’s truck
trip—reported positive net absorption of 17 million square
feet. Vincent Ranalli, a CBRE senior vice president based in
Wayne, Pa., outside of Philadelphia, called it the strongest
one-year absorption rate he’s seen in his 10 years there.
A CHANGING MARKET
Like all real estate, industrial property has its cycles. The
two recessions of the past 15 years took their toll on the
sector. But the current up cycle seems different from the
others, experts said. For one thing, it is the first where
e-commerce is playing a significant role in renting and
leasing decisions. Foreign capital is also more visible; in
April, a joint venture between the Norwegian sovereign
wealth fund and San Francisco-based developer Prologis
paid nearly $6 billion for the assets of Rosemont, Ill.-based
