The national industrial market continues to strengthen as the overall economy strengthens. Since peaking in 2009 at 10.4 percent, the national industrial vacancy rate has consistently improved quarter by quarter to a most rent vacancy rate of 8.4 percent, with asking rents following suit from a low of $5.43 in 2011 $5.72 most recently.
However, the recovery since 2009 has not been evenly dispersed across all regions. From 2010 through the first half of 2012, the gateway markets like Los Angeles, Miami, Houston and northern New Jersey have been the clear leaders in activity from both an absorption and investment standpoint. As the international markets began to slow in the later part of 2012, the U.S. economy shook off the cob webs, and the first signs of some domestic growth emerged. The larger distribution markets like Atlanta, Chicago, central Pennsylvania, Dallas and Memphis started to gain traction and have performed well through 2013. Healthy GDP growth in the fourth quarter of 2013, as well as improving employment numbers, point to increased consumer spending, which historically leads to improving vacancies and rental rate growth.
As companies continue to squeeze more cost and efficiency out of their supply chains in the next year, the demand for newer, more functionally efficient buildings will fuel new development and build-to-suits.
A healthy U.S. economy will result in improving fundamentals for all distribution markets, as well as Midwest markets closely tied to the manufacturing sector like Detroit.
Demand for core product in the gateway markets will remain strong, with limited supply resulting in continued low cap rates. However, investors have returned to the non-gateway tier one and secondary markets in search of higher yields as the allocation of investment dollars for industrial continues and demand remains strong.
We expect 2014 to be strong overall with increased development, but leasing transaction activity in the first half of the year may appear sluggish since few companies were active in early 2009 seeking five-year leases. The second half of 2014 and 2015 will be very active on the development and leasing activity front.
Walter Byrd serves as managing director out of Transwestern's Miami office. During his career, Byrd and his team have represented some of the largest corporate users in South Florida and have leased properties on behalf of many major institutional owners.