AFTER A YEAR IN WHICH ITS overall vacancy rate increased by more than two percentage points, the industrial sector is poised to witness a considerable slowdown in newin 2002 and 2003. That's the conclusion of a recent industrial market report by New York-based Cushman & Wakefield.
“Certainly, we're seeing industrial developers respond to the economic conditions,” says Maria Sicola, senior managing director of research for Cushman & Wakefield.
At the end of last year, the national industrial vacancy rate was 8.1%, up from 6% at the same point in 2000. Also, 132.1 million sq. ft. of new industrial space was delivered in 2001.
Approximately 84.5 million sq. ft. is slated for delivery in 2002, a total that will decrease to 48.9 million sq. ft. in 2003.
Cushman & Wakefield's construction total for 2001 includes approximately 10 million sq. ft. of space that is not categorized as either build-to-suit or speculative property, while the projections for 2002 and 2003 consist only of build-to-suit and speculative facilities.
The new construction for 2002 is concentrated in several markets, including, central and northern New Jersey, Atlanta, Dallas, Detroit, Louisville, Ky., Ft. Lauderdale, Fla., and Ontario, Calif., says Cushman & Wakefield.
Luis Belmonte, executive vice president of development for San Francisco-based AMB Property Corp., says Cushman & Wakefield's projections are reasonable. “My sense is that the pipeline has been approximately cut in half. I wouldn't expect to see a rebound in construction until 2004, or even 2005 if we have some sense,” he says.
“However, it's hard to predict whether the sector will have some sense,” he adds with a laugh.
Sicola notes that these projections could change if a recovering economy convinces developers that it's safe to increase their new construction load. With relatively short project cycles, industrial developers have a greater ability than those in other sectors to quickly alter their construction plans.
Greg Gregory, president and CEO of Atlanta-based IDI, notes that industrial developers may not currently have much in the pipeline, but could change their minds as late as September and still deliver new product in 2003.
On the other hand, “if you're an office developer, you better know by now what you're going to deliver in 2003,” he says. “Right now, I'm not going to turn on the spigot on anything that I don't have to. However, as the market turns, I could easily step on the accelerator.”
Approximately 62.5 million sq. ft. and 35.6 million sq. ft. of speculative properties are slated to come on line this year and in 2003, respectively, according to Cushman & Wakefield. Given the recession, one might think that developers would be more leery of building speculative properties.
However, the projections “aren't necessarily a surprise,” Sicola says. “Developers think the demand will be there when there is a recovery and that these properties will be up and ready to go. Ideally, you'd like to see the speculative numbers a bit lower, but there still will be fewer speculative properties completed than in 2001.”
Although the industrial market has undoubtedly been hurt by the recession, as evidenced by the rise in the national vacancy rate, Sicola believes that the sector has performed relatively well, especially when compared with the national office sector.
Cushman & Wakefield also asserts that the industrial sector could be the first commercial property type to recover during an economic upswing, as the shorter time frame for new construction delivery could allow the sector to respond relatively quickly to an uptick in demand.