Nine Trends in the U.S. Industrial Real Estate Market

Analysis: Of the top 23 U.S. markets, Houston had the lowest vacancy rate, 4.2 percent, in the first quarter. The average vacancy rate nationwide was 8.4 percent. Hampton Roads came closest to the national average with a vacancy rate of 8.3 percent. Sacramento had the highest rate at 13.7 percent. Vacancy rate refers to the percentage of the total square footage of buildings in the market that aren’t occupied, although they may already be leased.

What Jones Lang LaSalle Says: Leasing activity remained strong in Houston in the first quarter, continuing to hinge on the energy services industry as oil prices held between $80 and $90 a barrel. Vacancy rates will continue to decline until new development adds more space and finally catches up with demand.

Analysis: The Inland Empire experienced the largest drop in vacancy rates, 8.6 percent, from the fourth quarter of 2012 to the first quarter of 2013. Denver's vacancy rate grew almost 4 percent quarter-to-quarter.

What Jones Lang LaSalle Says: The opening quarter of 2013 saw notable speculative warehouse construction in the Inland Empire that continues to meet exceptional demand. Home Depot announced plans to develop a 1.1 million-square-foot fulfillment center to support its e-commerce operations in the region, while automotive giant BMW of North America will occupy a custom-tailored 326,500-square-foot facility in Redlands, Calif.

Analysis: Memphis had the lowest average asking rental rate in the first quarter at $2.47 per square foot. The average rental rate in all U.S. markets was $4.39, the same rate as that of Hampton Roads. Of these markets, Washington, D.C., had the highest average rent of $7.30.

What Jones Lang LaSalle Says: Average asking rents vary and are largely based on a market's identity: is it a major logistics corridor or a suburban locale? What is the supply and demand model? Is it a mature market or an emerging industrial corridor?

Analysis: Richmond, Va., saw the largest drop — 4.2 percent — in average rental rates year-over-year. Seattle's rental rate jumped 12.5 percent during the year.

What Jones Lang LaSalle Says: Small to midsize firms are fueling growth in Seattle, with demand for space in the 5,000- to 50,000-square-foot range. Demand also is coming from larger users seeking 50,000 square feet or more, as companies expand their local footprint.

Analysis: Los Angeles, with 16, had the largest number of industrial real estate buildings being built in the first quarter, followed by the Inland Empire with 15. Jacksonville and Hampton Roads had no buildings under construction this quarter. Jacksonville has not had any buildings being built since the third quarter 2011.

What Jones Lang LaSalle Says: Sixteen projects totaling 3.2 million square feet are under construction throughout the Los Angeles industrial market. These projects range in size from 38,974 to 617,500 square feet. The majority of the activity is based in the Central and South Bay, with developers such as Sares Regis, KTR Capital Partners and First Industrial active in the region.

Analysis: The Inland Empire had the most square footage of buildings under construction, at 7.27 million. The average square footage under construction in the top 23 markets during the quarter was 2.12 million. Jacksonville and Baltimore have no projects under way.

What Jones Lang LaSalle Says: Ten million square feet of new warehouse product has been developed in the Inland Empire since 2012, more than half of which has been leased or sold. There are 16 requirements for space in excess of 500,000 square feet, so speculative construction won’t slow any time soon.

Analysis: The U.S. Midwest had the highest market share of square footage among U.S. regions in the first quarter of 2013, at 43.4 percent. The Southwest had the second highest market share of 17.8 percent. The Northwest had the smallest market share this quarter with 3.4 percent.

What Jones Lang LaSalle Says: Chicago is the nation’s largest industrial market, with 1.1 billion square feet of warehouse and DC space.

Analysis: Chicago had the highest total square footage of industrial buildings in the first quarter with 1.13 billion. The average of the top 23 markets was 325 million square feet. Hampton Roads had the lowest amount of square feet with 64 million, its second consecutive quarter with that amount.

What Jones Lang LaSalle Says: In one of the quarter's most notable trends, the Inland Empire led the U.S. in net space absorption activity with 4.2 million square feet. But the Inland Empire’s total stock size is only 37 percent the size of Chicago.

Analysis: Net absorption is the total square footage of space occupied by a tenant that has moved in and occupies an industrial space, over space that a tenant has evacuated and cleared everything out. This differs from vacancy rate in that in the case of net absorption, a building could be leased and not occupied. During the first quarter of 2013, the Inland Empire experienced the highest square footage of net absorption at 4.2 million square feet. The average in the top 23 markets was approximately 1 million, close to that of Houston. Northern New Jersey had the lowest net absorption, with a negative 700,000 square feet.

What Jones Lang LaSalle Says: The Inland Empire is leading the charge, and the sky’s the limit as companies are eager for new, inland mega-box space. The market has a great strategic location and borders Los Angeles County, which houses the nation’s busiest seaports, Los Angeles and Long Beach.

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