Industrial Trends Report - 2nd Qtr 2014
Industrial Trends Report – Second Quarter 2014
On the surface the market appears to be doing well. During the quarter a healthy 337,000 square feet of space was absorbed. This above average level is primarily attributed to several large spaces becoming occupied. The largest was Nova Corporation leasing the former 192,000 square-foot Schott Solar plant in the Mesa Del Sol submarket for a data center. U.S. Cotton expanded their presence in Rio Rancho and occupied nearly 64,000 square feet of office warehouse space. The other large occupancy was Inland Kenworth’s completion of a 45,750 square-foot new truck service center and sales facility on the West Mesa. Additionally several building purchases by owner/occupants also contributed to the quarter’s success which removed another 60,000 square feet of vacant space.
Realistically the market is still lacking sustainable drivers of growth. The twenty percent increase in new construction and single-family housing starts is helping to stabilize the downturn. The increase, however, is small on a net number and has not translated to new demand for space. Many contractors still have plenty of excess capacity that needs to be grown into first before spurring demand.
Activity levels are still low with a limited number of users searching for space. The market remains flat and is stuck in a holding pattern. A majority of these are non-traditional users such as indoor gymnasiums, churches and charter schools who are taking advantage of affordable industrial spaces. Conversely, newer properties with spaces that have modern amenities are being leased up quickly but the supply of these is very low.
New speculative industrial construction projects have grinded to a halt. Instead, historically reduced land prices are enabling larger users, who require over 100,000 square feet, to develop their own facilities.
New speculative construction starts should remain dormant throughout the remainder of 2014. Any new projects will not move forward until at least 2015. A shortage of large warehouse spaces over 100,000 currently exists but lower lease rates in competing markets are preventing developers from considering them. Any new construction projects moving forward will be for larger build-to-suits for single tenants or owners developing projects themselves. Land prices for large land tracts over ten acres should remain attractive and help to facilitate this trend. More functionally obsolete properties will be acquired as offerings get price reductions that are aligned with owner/investor expectations. Renovation strategies should help to offset the lack of new speculative construction starts.
Overall demand for space is expected to remain flat for the rest of 2014. Without a major uptick in new housing starts, growth prospects will be muted. A limited number of deals for larger spaces should help to offset an increase in consolidations and downsizings. Look for a modest increase in the amount of sublease availabilities brought to market. Most of these will be for excess spaces not currently being fully utilized. These will likely occur primarily in R&D/Flex property types that have a higher percentage of the space allocated to office use.
Demand for single-tenant industrial investments should increase as the supply of offerings in major markets gets snapped up. This should lead to increased interest in secondary markets as investors search for higher returns. Growth in e-commerce is providing strong demand for large regional warehouse and distribution properties.
BAD-LAF Commercial RE, LLC
545 Vortex Rd
Xynatech Holdings, Inc.
5201 Hawking Dr SE
KMK, LLC (Kinesio Taping)
4101 Masthead St NE
CKM Development, Inc.