Colliers International Group Inc. (Nasdaq: CIGI) (TSX: CIG) has released its 2015 Q2 North America Industrial Highlights Report, which reveals continued strong movement and optimism for the remainder of 2015. According to Colliers' analysis, the North American industrial real estate market is posting record absorption and rental rate increases with mixed macro-economic signals -- including rising risks from abroad, particularly China, potentially impacting the market.
"In today's low-yield environment, the industrial sector continues to post the highest average cap rates for any commercial property type," said Dwight Hotchkiss, National Director, Industrial | USA for Colliers International. "The results of our North American Q2 survey reflects sustained optimism, particularly in the U.S., in anticipation of ongoing growth."
Of the 70 U.S. markets surveyed by Colliers, 57 forecast positive industrial demand for the next three months. Of the 12 Canadian markets surveyed by Colliers, six forecast positive industrial demand for the next three months.
Key takeaways from this report include:
- Vacancies in the North American industrial market declined by 19 basis points (bps) to 6.4 percent. In the U.S., the vacancy rate fell for the 22nd straight quarter, down 20 bps to 6.8 percent. In Canada, the vacancy rate fell 7 basis points to 3.7 percent.
- North American net absorption totaled 74.3 million SF (MSF), broken out into 72.4 MSF for the U.S. and 1.9 MSF for Canada. This is the highest level of industrial demand seen post-recession and is heavily concentrated in bulk distribution space in a handful of markets.
- Strong industrial space demand and tightening vacancies are pushing up asking rents in most markets. The average asking rent for warehouse buildings in the U.S. rose 1.6 percent over the previous quarter to end at $5.23 PSF USD. However, in Canada, rents at $7.99 PSF CAD, are down 1.4 percent from the prior quarter.
- Some markets are seeing outsized increases in asking rents. For example, asking rents for warehouse space were up significantly in Walnut Creek (29.6 percent year-over-year through 2Q), Birmingham (22.4 percent) and Oakland (21.7 percent).
- Investors remain hungry for yield worldwide, and the safety that U.S. denominated industrial assets provide is leading to a continued surge in mega-deal activity. Last quarter saw Prologis’ purchase of KTR and GLC’s purchase of the IndCor portfolio. Currently in the works is the acquisition of Industrial Income Trust by GLC, which would make GLC the second-largest operator of U.S. warehouse properties. In addition, the Abu Dhabi Investment Authority is teaming up with Canadian PSP Investments to purchase the 55 MSF Exeter Property portfolio.