After lackluster demand for U.S. industrial space, which includes Philly industrial space, in the first nine months of 2014, absorption of industrial space in Philadelphia and elsewhere in the U.S. is expected to increase in the last three months of the year as an estimated 50 million square feet of new warehouse and light industrial space comes to the market, a new report says.
The strong fourth quarter will come on the heels of nine months of flat demand for U.S. and Philadelphia industrial space, including warehouse space, which traditionally has increased quarterly but was flat in 2014, according to the CoStar Third Quarter Industrial Real Estate Review and Outlook.
With vacancies very low, there has been virtually no new industrial space in Philly or the nation for tenants to move into. The dozens of new buildings that will come to the U.S. and Philadelphia industrial space market by December 31 represent both build-to-suit properties and speculative buildings, the report said.
Logistics construction also is on the rise, with approximately 100 million square feet of logistics under construction nationwide, according to the report. Rising rents and demand justify the construction in most markets, giving developers confidence to build on spec. More than half of the logistics construction now underway is being built without signed tenants on board. One estimate put the current construction at about 30% below the market’s potential.
As rents rose at a higher rate than replacement costs, developers were encouraged to build more to meet rising demand for industrial space in Philadelphia and the U.S. The U.S. vacancy rate dropped to 6.9%, the report said, lower than it was at the same point in the last cycle, while rents came to within about 0.8% of their long-term trend.
At the end of the third quarter, rent was up 3.4% over the year prior in both the logistics and light manufacturing sectors of the U.S. industrial market, which includes industrial space in Philly. That very strong performance still had notable differences between higher quality and less functional space, CoStar said.
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