Where the Warehouses Go

Industrial Market Is Soft But Not Sour – National Real Estate Investor – Matt Hudgins – 14 August 08

Weakened demand for warehouse and distribution space contributed to a rise in the nation’s industrial vacancy rate in the second quarter, but rents are still rising in some major metros and port cities….national vacancy rate climbed to 8.52% at mid-year, up 34 basis points from the first quarter…The first quarterly drop in absorption in more than five years contributed to the uptick in empty space…the export sector remains a bright spot, showing it’s not all doom and gloom for industrial…”The relative balance between supply and demand for industrial space – the high rate of utilization in many of the port markets – will allow vacancy rates to remain in check and relatively stable as compared to what is observed in the other [property] sectors,” Chandan says…

With the price of oil increasing, the economics of transportation will favor shifting some facilities closer to the consumer. But the shift will center around locations with easy access to large consumer catchements and this will mean international transport points and in lower cost locations that service a large consumer catchement (such as Memphis/Nashville servicing the Midwest). Similarly (as to the U.S.) the growth of exports will favor locations near ports and airports. Finally, given the large distances and higher trucking costs, railroads will be favored. So expect a mini-boom in distribution centers near international ports/airports, central inland locations (outside of the most expensive locales), and on rail lines.