C & W report: Economy to recover mid-year 2002

Real Estate Weekly, March 20, 2002

As the economy shows early signs of improvement, a full blown recovery is expected by midyear 2002. An improving economy led by traditional manufacturing bodes well for an industrial real estate recovery over the next 12 months, according to Cushman & Wakefield senior managing director, research, Maria T. Sicola.

"As the economy recovers from recession, industrial markets are likely to recover first," she said. "Healthcare, pharmaceutical, education and defense continue to grow despite the downturn.

The year-end 2001 national industrial vacancy rate was 8.1%, up from 6% at year-end 2000. New construction completions amounted to 132.1 million SF, primarily consisting of speculative warehouse/distribution space. Virtually no new manufacturing space was delivered in 2001, resulting in only a minimal increase in the overall manufacturing vacancy rate. This is particularly noteworthy as manufacturing was the first sector impacted by the recession. Strong markets included Boston, Philadelphia, Central and Northern New Jersey, Dallas and Atlanta.

Construction activity will slow noticeably in 2002. "In the fourth quarter of 2001, we started to see a slow down in speculative construction as well as build to suit activity," said Pamela Zoellner, senior managing director, industrial services, of Cushman & Wakefield. "This trend will continue in 2002."

Approximately 84.5 million SF is scheduled for delivery in 2002. Of the 84.5 million SF, 74% is speculative in nature. The majority of the new construction is concentrated in Ontario, Calif.; Chicago; Central and Northern New Jersey; Atlanta; Dallas; Detroit; Fort Lauderdale and Louisville.

Of the 31 industrial markets surveyed by Cushman & Wakefield, 11 markets experienced increases in warehouse/ distribution asking rents from fourth quarter 2000 to fourth quarter 2001. The markets experiencing the greatest increases included Orange County, Calif.; Philadelphia; Denver; Northern New Jersey and Los Angeles. Markets experiencing the most significant declines in warehouse/distribution rents over the same period include San Francisco Peninsula, San Jose and Los Angeles North.