Industrial building market may ‘slow to near standstill’

By Brian Wargo (contact), In Business reporter

Fri, Oct 30, 2009 (3 a.m.)

Industrial buildings’ rents fell sharply in the third quarter, and the trend shows no sign of slowing as demand is weak, analysts said.

The average asking price per square foot fell for the third consecutive quarter, Applied Analysis Principal Brian Gordon said. It declined 4.2 percent in the third quarter after dropping 3.9 percent in the first quarter and 4.1 percent in the second quarter.

Few projects likely will come on line in 2010 because of low demand for industrial space, Gordon said. More than 12.3 million square feet are empty, bringing the vacancy rate to a record 12.4 percent, up from 12 percent in the second quarter. The 90.2 million square feet of occupied space are on par with peak levels two years ago, he said.

“With limited development left in the construction pipeline and depressed levels of economic growth in local, regional and national economies, the industrial market is expected to slow to a near standstill,” Gordon said.

The average asking rate of 68 cents per square foot is down 10.5 percent in the past year, the firm reported.

Restrepo Consulting Group calculates the average monthly asking rent has plunged 26 percent in the past year. The firm, which puts the vacancy rate at 14.2 percent at the end of the third quarter, reported the vacancy rate has increased for 13 consecutive quarters. Landlords are competing with discounted sublease space.

“Who would have thought back in the first quarter of 2007 when we had an industrial vacancy rate of 4.3 percent that we would be at 14.2 percent today?” Principal John Restrepo said. “It is quite extraordinary how quickly and deeply our once-vaunted industrial market has been impacted by the recession.”

Dave Dworkin, research director at Grubb & Ellis, predicts the vacancy rate will increase slightly before the end of the year and suggests industrial development won’t restart until late 2010.

The firm said the northwest valley had the highest vacancy rate at 25.4 percent, followed by the area surrounding McCarran International Airport at 17.9 percent. Henderson had a 14.2 percent vacancy rate; the southwest valley had a 12.4 percent vacancy rate; and North Las Vegas was at 11 percent.

CB Richard Ellis reported the southwest valley had the highest average monthly lease rate at 78 cents per square foot.

Near the airport was 73 cents, the northwest valley was 71 cents and Henderson was 62 cents. The lowest was 52 cents in North Las Vegas.

Colliers International reported 20 percent of the available space’s lease rates decrease an average of 16 cents per square foot in the third quarter and 4 percent increased an average of 13 cents per square foot.

“Given the current market conditions and the expectation of weak growth moving forward, the industrial market could be as many as 12 months away from the average asking rental rate hitting bottom,” said Matt Stater, research director at Colliers.