As industrial real estate leasing has been steadily increasing in the past two quarters, it is still at it’s lowest ever since back in 2001. As the vacancy rate went down for most of the final quarter of the year, it went up at the end, leaving 2015 with a weak finish. However, this isn’t terrible news, because those industrial landlords still left 2015 with reason to be happy with how the year went:
- Seattle-based Colliers International shows that industrial vacancy in the Chicago area rose to 7.32 percent in the quarter, up from just 7.26 percent in the previous period, and down from 7.73 percent in 2014. Industrial vacancy also slightly increased in the third quarter after a low of 14 years of 7.23 percent in mid-2015. However, it is well below the peak of 12.24 percent in 2010 after the crash.
- Warehouse space is in demand as the economy has expanded, yet it is hard to know how outside forces like China’s economy, low oil prices, and drops in stock prices will affect Chicago. It is easy to be happy about the fact that real estate is in demand for companies or other tenants, however, it is possible that those people will become cautious as it is clear that financial crises create a chain that affects real estate vacancies months down the road.
- Net absorption was at its worst from 2008 to 2010. This is the amount of space that is occupied as opposed to the amount not occupied. As builders created more space, the absorption rate grew slightly. The supply should still be available for the demand as buildings are still be constructed, leaving those that need warehouses and other buildings, an opportunity to thrive in those buildings.
- Builders don’t believe they have overbuilt. They believe the supply is there for the demand and that the rate of vacancy will go down with time. Industrial buildings seem to be the highest priority, and that is what is being built, to help supply that specific demand. For example, a major logistics company based in Minnesota leased a 235 thousand square foot warehouse in the suburb of Des Plaines which will be used as a major hub for freight consolidation.
The future is looking bright as long as industrial landlords can continue to build modern buildings and the demand is still there for those buildings. As 2015 ended, the vacancy rate was at 7.3% for industrial real estate. However, it is not as disheartening that it is about half of what the vacancy was around the time of the crash that affected the whole world. It is a little disheartening though that so many outside sources can affect the way industrial real estate is used. China’s economy being low can create a ripple effect that would create another crash. From there, America would have to overcome and start rebuilding, something that took almost 9 years to dig out of. As long as there are industrial buildings going up, and are being occupied, the market should stay stable.