When manufacturing companies are looking for a new or additional location, they're often concerned with the availability of quality labor, utility costs, freeway and rail accessibility, local and state taxes, and building availability and costs.
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By: James Breeze Source: Cushman & Wakefield, CoStar, and RCA
*Analysis includes markets tracked by C&W and Alliance offices.
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- Industrial development accelerated at a rapid pace in many U.S. markets over the past year. Over 65.3 msf of industrial product was under construction at the end of first quarter 2013. Newly constructed product also increased, finishing first quarter at 14.5 msf. Both of these marks are nearly double this time last year.
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- Dallas leads the way with most sf under construction at 9.6 msf. However, when looking at just speculative development, the Inland Empire market in Southern California still dominates the market and accounted for 29.1% of the speculative construction that delivered this quarter.
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- These two markets aren’t alone with large amount of construction. At the end of first quarter Chicago, Central New Jersey, Greater Los Angeles, Indianapolis, Phoenix, San Antonio, Atlanta, Houston, and the Pennsylvania I-81/I-78 Industrial Corridor all had over 2.0 msf under development.
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- With increased development, there has been a significant increase in land values. The U.S. average price for closed land deals 2 acres and higher was $8.41 psf, over 9.5% higher than year-end 2012, and up 17.8% from year-end 2009.
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- Every major industrial market posted increases in land value since 2009 and Atlanta had the largest increase over this time period with a 161% increase. Land value in land-constrained market such as Greater Los Angeles is the highest in the nation. This port market, together with the Oakland/East Bay market, posted the largest taking price in the nation, with an average of over $20 psf.
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Source: Downtown Cleveland Alliance Monthly E-Newsletter and Market Update, Cushman & Wakefield Research
The Metro Cleveland office vacancy rate held steady during 2012 ending the year at 19.1% overall with the entire Class "A" vacancy rate finishing at 13.3%. The overall office market posted just over 440,000 square feet of positive absorption in 2012. During 2012 there has been an attractiveness of the CBD market that is causing a notable revival. With a $3.5 billion investment boom in full swing, Downtown Cleveland continued to attract businesses, residents, and visitors seeking an exciting environment in which to work, live and play. In 2012, firms such as Dwellworks, Britton-Gallagher, and Brand Muscle have relocated to the CBD. During the month of April, AmTrust Financial Services will be moving 1,000 employees into the 800 Superior Building, absorbing an estimated 200,000 square fee of space. This recent suburban interest is boosting energy in the downtown area and creating excitement.
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Changing Office Trends Holds Major Implications for Future Office Demand
Source: CoStar Group
Tenants are downsizing their offices, particularly larger public firms, as they increasingly adopt policies for sharing non-dedicated offices and implement technology to support their employees' ability to work anywhere and anytime, according to Norm G. Miller, PhD, a professor at the University of San Diego, Burnham-Moores Center for Real Estate.
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By: Steve Harriss, C&W Industrial Fact Team
Source: Cushman & Wakefield Research
*Only markets tracked by Cushman & Wakefield offices are included in this analysis.
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- Overall vacancy in the top ten industrial markets shows an interesting fact. As of April 2013, overall vacancy in warehouse/distribution buildings with clear heights below 22’ is 7.7%, compared to clear heights between 22’ and 29’ (10.1%) and clear heights 30’ and greater (10.1%). The top ten markets include Atlanta, Chicago, Dallas/Fort Worth, Greater Los Angeles, Houston, Inland Empire, Central and Northern New Jersey, Orange County and Philadelphia.
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- Starting in the late 1980’s and into the 1990’s, tenants started demanding clear heights greater than 22’ clear. During the late 1990’s and 2000’s as new technology allowed users to stack products higher (30’ clear and greater), saving on space requirements, developers fulfilled tenants needs. From 1996-2008, over 1.1 billion sf of spec product was added to the market.
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- However, as this change occurred, start-up companies and smaller tenants remained in their space longer, keeping vacancy of the less than 22’ clear buildings low. In addition, the share of the market for lower clear height buildings is shrinking while the big box warehouse share is growing. The slowdown in demand coupled with the addition of 151 msf of spec product to the market in 2008-2009 drove the U.S. overall vacancy to 10.9% in 2009.
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- When the market finally started recovering in 2011, there was a shift in demand dynamics due to the significant growth of e-commerce. Companies focused their investments in fulfillment – maximizing efficiencies in inventory, service time and delivery – and set up massive distribution centers. Most of these mega fulfillment centers were built on a BTS basis.
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- Due to the increasing amount of BTS activity, the market has not had time to absorb the amount of speculative construction that was delivered vacant which accounts for the higher vacancy. Currently, there are ten 1-msf plus projects under construction and nine of them are BTS.
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Positive Surprise; Momentum Building?
Source: Cushman & Wakefield Research Report,
U.S. February Employment Report
The pace of job growth in the U.S. has begun to ramp up. In February 2013, employers added 236,000 jobs to their payrolls, the third time in the last four months that employment growth has exceeded 200,000. Over the last 12 months, the economy has added 2.0 million total jobs and 2.1 million private sector jobs (government employment has declined by 100,000 jobs). As of February, the U.S. had recovered 5.7 million or 66% of the 8.7 million jobs lost in the recession, bringing employment to its highest level in just over 4 years. At the rate of the last 12 months (165,000 per month), the economy will fully recover all the jobs lost in the recession in mid 2014.
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By: Jason Price, C&W Industrial Fact Team
Source: Cushman & Wakefield Research, Moody's Analytics
*Only markets tracked by Cushman & Wakefield offices are included in this analysis.
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- The above chart highlights the correlation between the nation's annual GDP and U.S. industrial new leasing activity. The U.S. economy began to grow at a more brisk rate starting in 2002 and 2003 as the recession was behind us. From 2003 to 2005, the GDP edged higher by 5.8 while new leasing volume of industrial space ascended markedly by 27.5%. In that time, vacancy fell to 8.1%, a low not previously seen since the end of 2001.
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- After peaking in 2005, industrial demand began to slow as annual GDP growth decelerated to an average of 2.3% annually, the next two years. However, demand was healthy enough to push the U.S. industrial vacancy rate down to 7.2% in 2007.
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- As the nation entered into its second recession in less than ten years, the need for industrial space (specifically warehouse/distribution) dwindled. In turn, new leasing activity fell by almost 30% in the next two years. Meanwhile U.S. GDP shrunk by 3.4% in that same time. More than 131 million square fee to industrial space was negatively absorbed from 2008 to 2009, causing vacancy to jump 3.2 percentage points to 10.4% at year-end 2009.
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- Since 2009, while the U.S. GDP has not grown at previous levels, it has had a positive effect on industrial demand. Leasing activity in the country has risen each year since, propelling overall net absorption to total more than 202 msf from 2010 through 2012. Overall vacancy returned to pre-recession levels at 8.3% at the close of 2012. Industrial demand is projected to remain strong through 2013, which should further improve vacancy levels in most major markets.
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By: Jared Jacobs, C&W Industrial Fact Team
Source: Cushman & Wakefield Research
*Only markets tracked by Cushman & Wakefield offices are included in this analysis.
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- From 2003-2008, 445.2 msf of new speculative (spec) construction delivered in the country, nearly triple the 154.69 msf of build-to-suit construction activity during that time. From 2009-2012 new spec construction declined to 65.7 msf.
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- New spec construction hit an all time low in 2011 with only 2.8 msf of new inventory added to the market. Over the past year, confidence by developers in the market has been returning, evidenced by the 20.4 msf of new spec construction that delivered in 2012.
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- Spec construction increased steadily each year by an average of 28.0% from 2003-2008. With 112.4 msf of new spec inventory added in 2008, the overall rate ballooned to 10.4% in 2009, the highest national industrial vacancy since 1994.
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- From 2010-2012, build-to-suit construction was strong and totaled 44.8 msf. In 2012, 35.6 msf of new supply was added to the inventory and 43.0% of that was built on a build-to-suit basis for large tenants such as Amazon.com, Unilever, Kohl's, Georgia Pacific and the Home Depot.
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- In 2009, spec construction suffered a 66.0% decline from 2008. Historically low construction levels helped the nation recover from the significant market slowdown in 2009. Since year-end 2009, the overall vacancy rate declined steadily to 8.3% at year-end 2012 due to the limited amount of spec construction added over the past three years.
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- With the smaller amount of new supply added from 2010-2012, absorption numbers were able to rebound ending each of those years in the positive and 2012 ended the year at 95.1 msf of positive absorption, the highest since 2006.
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By: Robert Hoefer, C&W Industrial Fact Team
Source: Cushman & Wakefield Research, US Bureau of Labor Statistics
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With the help of your real estate advisor, there are a number of questions to ask about your existing commercial lease, that take into account your long-term business goals. Ask yourself the following 5 questions to help you decide between moving on and staying in your current space.
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Is your existing space too large or too small for your business?
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