Supply squeeze raising cost of warehouse, distribution centers
US, with tight supply andincreasing construction costs continuing
to boost lease prices past their 2001 peak, according to
asemi-annual study of the market.
The average industrial vacancy rate across the country's top 30 markets fell to eight per cent in the second quarter of 2006, compared to 8.8 per cent the year before, the report found. Asking rents, meanwhile, increased eight per cent in the 12 months ended June 30.
In contrast, core inflation in the US, which excludes food and energy prices, amounted to 3.1per cent during the same period.
The report, by ProLogis, provides a look into the state of the manufacturing property market. TheDenver-based provider of distribution facilities and services indicates continued improving conditions for developers of industrial distribution space across theUS.
"Leasing market conditions have tightened to the point where property owners are now in the driver's seat, with enough leverage to begin pushing rents higher,"stated Leonard Sahling, ProLogis first vice president of research. "Our projections call for the national vacancy rate to recede beloweight per cent by year end, paving the way for sustained, broad-based rent increases."
ProLogis says asking rents remain on the rise and will soon surpass their previous cyclical peak, reached in early 2001.Rents increased 3.6 per cent during the first half of 2006, after having risen 4.2 per cent during the previous six months.
A second report looking at planned construction in the pipeline found that new industrial development, while on the rise, generally remains disciplined.
New industrial starts in the US are now projected to reach 130m to 140m square feet in 2006, or about 2.6per cent of existing inventory. At the same time, construction costs have jumped sharply and may increase as much as 15 percent by the end of theyear, ProLogis forecasts.
The reports also includes data showing that 18 of the top 30 markets posted vacancy-rate declines in the firsthalf of 2006. Net absorption totaled 67 million square feet during the first six months of the year, which translates to a 2.8per cent annual growth rate in total occupied space.
The Los Angeles Basin remains the nation's tightest distribution center market, with an overall vacancy rate of about 3.5per cent. Other key markets in which vacancy rates fell during the one-year period were Chicago, Northern New Jersey and EasternPennsylvania.
Speculative building accounted for 72 per cent of total starts in the first half of the year, compared with 77per cent in the second half of 2005.
Construction outlays are rising as a result of broad-based run-ups in prices for steel, concrete, asphalt andcopper, ProLogis found. In aggregate, they will add as much as $3 per square foot to the shell cost of a typical distribution facility over the course of theyear, the company estimates.
"As long as the US economy continues to grow without interruption, so should the cyclical upswing in the nation's warehousing and distributionmarkets," Sahling said.
ProLogis manages or owns 404.3 million square feet (37.6 million square meters) of distributionspace in 2,401 properties across 81 markets in North America, Europe and Asia.
