Industrial Real Estate Market Registers Overall Positive Net Absorption for First Half of 2008

Oct. 10, 2008
Chicago-based Jones Lang LaSalle's Mid-Year 2008 National Industrial Real Estate Market Report, which analyzes activity in industrial properties that are 50,000 square feet and larger, shows that, while warehouse and manufacturing sectors have been impacted by the slowing economy, the national industrial real estate market experienced overall positive net absorption in the first half of the year, exceeding most forecasts.

U.S. industrial markets absorbed approximately 5.6 million square feet in the first quarter of 2008, and 125,000 square feet in the second quarter, significantly lower than historical first-half performance. Jones Lang LaSalle views the slower growth as a consequence of uncertain economic conditions.

According to Craig Meyer, managing director, national brokerage leader, industrial services with Jones Lang LaSalle, "There is a myriad of economic issues causing this slowdown in activity - soft unemployment; increasing fuel/transportation costs; lower retail sales, which have a rippling effect on warehousing needs; and our nation's overall recessionary trend are all contributing factors to the declining activity in the overall industrial real estate market."

The national industrial vacancy rate ended the second quarter at 9.1 percent, up three-tenths of a percentage from the first quarter 8.8-percent rate. Markets that experience positive net absorption can also see vacancies increase due to the delivery of new developments.  

"Most major industrial real estate markets nationwide felt the softening of conditions during second quarter as companies avoided unnecessary moves and focused on cost control, flexibility, and short-term solutions," says Meyer. "In the short term, this creates negotiating leverage for tenants still in growth mode, while over the longer term, a cautious stance helps the market maintain stability and avoid overbuilding."

The Jones Lang LaSalle report showed that occupancy growth during second quarter was minimal when compared with 2006 and 2007 levels. While Chicago, Dallas, Houston, and Philadelphia posted occupancy gains between April and June, several major markets, including Atlanta, Los Angeles/Inland Empire, and northern New Jersey, experienced negative net absorption.

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