"On the Mend"

There were signs of the nascent industrial market recovery at Grubb & Ellis’ national industrial meeting held near Dallas this week, where a panel of leading executives debated the state of the market.

· Tenants, though still cautious, are beginning to emerge from their shells. Jeff Thornton, Senior Vice President of Duke Realty’s Dallas operations, cited three examples of large tenants beginning to execute on their expansion plans.
· Jim Martell, Chairman and CEO of Ridge Property Trust, coined the term “vacancy tranches,” noting that some key size categories are tightening. Jim cited large distribution centers of 700,000 square feet and up in Southern California’s Inland Empire, noting that few options are available for tenants and owner-users.
· Brian Townsend, Senior Vice President at CenterPoint Properties, confirmed this trend, noting that a tenant in one of his developments opted for two smaller buildings because a single, larger building was unavailable. Brian noted that build-to-suit activity is expected to pick up in selected size categories as a result.
· Despite these signs of progress, the market remains slow. Bill Burton, Senior Vice President at Hillwood’s Alliance Texas development, noted that vacancy rates in the North Texas region, normally very stable, remain elevated.

Economic and market data point to a slow recovery. The U.S. industrial market absorbed 20 million square feet in the second quarter, pushing vacancy down to 10.6 percent from 10.9 percent in the first quarter. The Institute for Supply Management’s Purchasing Managers Index has reflected a growth cycle since August 2009 while the Association of American Railroads reports that freight carloads in August 2010 were at their highest level since November 2008.

Industrial market conditions remain soft overall, but it will be one of the first property types to recover along with apartments.

Have a great weekend.

Best regards,

Tim With