Key takeaways from this report include:
- The U.S. was the sole driver of the decreased vacancy rate, with a 24 basis points (bps) improvement to 7.5%, as the Canadian vacancy rate was flat at 4.0% in the quarter.
- The Greater Philadelphia market vacancy remained flat during the 3rd quarter; however, a more significant decrease in vacancy is anticipated for Q4.
- Both the U.S. and Canada posted positive absorption in Q3 totaling a combined 64.8 million square feet (msf). U.S. absorption totaled more than 60 msf, the highest quarterly total during the current cycle other than Q4 2012, when 64 msf were absorbed.
- Locally, absorption for the quarter decreased from the second quarter. The completion of pre-leased speculative and build-to-suit projects will result in a net gain in occupancy and stronger absorption in the fourth quarter.
- Development activity increased in both the U.S. and Canada to a total of 155.9 msf under construction, up from 142.9 msf in Q2 2014. The absorption-new supply ratio increased slightly to 1.7:1.0, from 1.4:1.0 in Q2 2014, but has come down significantly from more than 2.0:1.0 in 2013. This will be a key metric to gauge the supply-demand balance as development activity increases further in the coming quarters.
- Locally, the level of build-to-suit and speculative construction was up 28 percent from Q3 2013 with additional projects set to commence before the end of 2014.
- Inland distribution and intermodal markets continue to perform well, driven by surging energy production, sustained manufacturing sector expansion and robust e-commerce growth. Among the top markets for absorption in both Q3 2014 and year-to-date were Chicago, Dallas-Fort Worth, Atlanta, LA-Inland Empire, Houston, Indianapolis and Stockton/San Joaquin County.
- E-commerce requirements are a significant driver of bulk warehouse demand in the Greater Philadelphia area.
- Although West Coast port workers remain on the job as of this writing, labor talks have grown increasingly contentious since the expiration of the ILWU contract in July. Major retailers, among others, have been redirecting shipments to East and Gulf Coast ports, boosting cargo volumes and supporting substantial industrial market improvements in fast-growing port markets such as Savannah and Charleston in Q3 2014.
- Strong market fundamentals are attracting investors to North American industrial properties. According to Real Capital Analytics, total transaction volume exceeded $11 billion in the six quarters through Q3 2014, the longest such stretch since Q1 2008. The average cap rate decreased to 7.31% in Q3 2014, the lowest since Q2 2008, and cap rates for the top quartile of warehouse properties are significantly lower, averaging 5.8% in Q3 2014.
- Locally, investor demand remained strong for net-leased assets and increasingly for value-add opportunities and development sites.
Read the full report here.