Second Quarter 2016 – National Industrial Market

Ken Ward Economy

U.S.’s Vacancy Decreases to 5.9%
Net Absorption Positive 74,411,621 SF in the Quarter

The U.S. Industrial market ended the second quarter 2016 with a vacancy rate of 5.9%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 74,411,621 square feet in the second quarter. Vacant sublease space increased in the quarter, ending the quarter at 40,231,513 square feet. Rental rates ended the second quarter at $5.93, an increase over the previous quarter. A total of 381 buildings delivered to the market in the quarter totaling 53,240,578 square feet, with 224,783,268 square feet still under construction at the end of the quarter.

Absorption
Net absorption for the overall U.S. Industrial market was positive 74,411,621 square feet in the second quarter 2016. That compares to positive 68,429,332 square feet in the first quarter 2016, positive 110,817,425 square feet in the fourth quarter 2015, and positive 82,332,582 square feet in the third quarter 2015.

The Flex building market recorded net absorption of positive 7,812,393 square feet in the second quarter 2016, compared to positive 5,419,024 square feet in the first quarter 2016, positive 14,778,080 in the fourth quarter 2015, and positive 7,029,736 in the third quarter 2015.

The Warehouse building market recorded net absorption of positive 66,599,228 square feet in the second quarter 2016 compared to positive 63,010,308 square feet in the first quarter 2016, positive 96,039,345 in the fourth quarter 2015, and positive 75,302,846 in the third quarter 2015.

Vacancy
The Industrial vacancy rate in the U.S. market area decreased to 5.9% at the end of the second quarter 2016. The vacancy rate was 6.0% at the end of the first quarter 2016, 6.1% at the end of the fourth quarter 2015, and 6.4% at the end of the third quarter 2015.

Flex projects reported a vacancy rate of 7.8% at the end of the second quarter 2016, 8.1% at the end of the first quarter 2016, 8.3% at the end of the fourth quarter 2015, and 8.7% at the end of the third quarter 2015.

Warehouse projects reported a vacancy rate of 5.7% at the end of the second quarter 2016, 5.8% at the end of first quarter 2016, 5.9% at the end of the fourth quarter 2015, and 6.1% at the end of the third quarter 2015.

Largest Lease Signings
The largest lease signings occurring in 2016 included: the 1,244,874 square foot lease signed by Wayfair, Inc. at Duke Perris Logistics Center in the Inland Empire (California) market; the 1,041,879 square foot lease signed by Amazon at 35 Eagle – Building B in the Dallas/Ft Worth market; and the 1,003,267 square foot lease signed by Tesla Motors at the Oaks Logistics Center in the East Bay/Oakland market.

Rental Rates
The average quoted asking rental rate for available Industrial space was $5.93 per square foot per year at the end of the second quarter 2016 in the U.S. market area. This represented a 1.7% increase in quoted rental rates from the end of the first quarter 2016, when rents were reported at $5.83 per square foot.

The average quoted rate within the Flex sector was $11.58 per square foot at the end of the second quarter 2016, while Warehouse rates stood at $5.22. At the end of the first quarter 2016, Flex rates were $11.48 per square foot, and Warehouse rates were $5.12.

Deliveries and Construction
During the second quarter 2016, 381 buildings totaling 53,240,578 square feet were completed in the U.S. market area. This compares to 512 buildings totaling 60,837,623 square feet that were completed in the first quarter 2016, 543 buildings totaling 68,646,517 square feet completed in the fourth quarter 2015, and 62,634,179 square feet in 455 buildings completed in the third quarter 2015.

There were 224,783,268 square feet of Industrial space under construction at the end of the second quarter 2016. Some of the notable 2016 deliveries include: Dollar Tree Distribution Facility, a 1,500,000 square foot facility in the Greenville/Spartanburg market that delivered in second quarter 2016 and is 100% occupied, and Meredith International Centre – QVC, a 1,061,735 square foot facility in the Inland Empire (California) market that delivered in second quarter 2016 and is 100% occupied.

The largest projects underway at the end of second quarter 2016 were Volvo North American Manufacturing, a 2,300,000 square foot building with 100% of its space preleased in the Charleston/N Charleston market, and TPCO America, a 1,600,000 square foot facility that is 100% preleased in the Corpus Christi market.

Inventory
Total Industrial inventory in the U.S. market area amounted to 21,731,112,132 square feet in 634,448 buildings as of the end of the second quarter 2016. The Flex sector consisted of 2,300,001,785 square feet in 91,351 projects. The Warehouse sector consisted of 19,431,110,347 square feet in 543,097 buildings. Within the Industrial market there were 72,626 owner-occupied buildings accounting for 4,515,376,141 square feet of Industrial space.

Sales Activity
Tallying Industrial building sales of 15,000 square feet or larger, U.S. Industrial sales figures fell during the first quarter 2016 in terms of dollar volume compared to the fourth quarter of 2015.

In the first quarter, 1,397 Industrial transactions closed with a total volume of $6,668,998,389. The 1,397 buildings totaled 102,293,142 square feet and the average price per square foot equated to $65.19 per square foot. That compares to 1,751 transactions totaling $9,959,690,760 in the fourth quarter. The total square footage was 144,999,643 for an average price per square foot of $68.69.

Total year-to-date Industrial building sales activity in 2016 is down compared to the previous year. In the first three months of 2016, the market saw 1,397 Industrial sales transactions with a total volume of $6,668,998,389. The price per square foot has averaged $65.19 this year. In the first three months of 2015, the market posted 1,392 transactions with a total volume of $6,826,064,907. The price per square foot averaged $66.06.

Cap rates have been higher in 2016, averaging 7.46%, compared to the first three months of last year when they averaged 7.42%.

One of the largest transactions that has occurred within the last 4 quarters in the U.S. market is the sale of 101 Possumtown St in the Northern New Jersey market. This 360,000 square foot Industrial building sold for $125,000,000, or $347.22 per square foot. The property sold on 6/6/2016, at a 4.76% cap rate.