U.S. Industrial Market First Look: 2009-Q4

SANTA ANA, CA--Grubb & Ellis Co. presents highlights of its U.S. Industrial Market for fourth quarter, 2009:

· Vacancy increased for a ninth consecutive quarter to end the year at 10.6 percent. For a fourth consecutive quarter, the rate of increase declined. Vacancy increased sequentially by 70, 60, 30 and 20 basis points over the last four quarters.

Among the major markets, vacancy remained lowest in land-constrained Los Angeles County at 3.3 percent and was highest in economically depressed Detroit at 22.0 percent. Vacancy increased most sharply last year in San Diego, Las Vegas and Palm Beach County, Fla., all of which recorded gains of 400 to 500 basis points. Only the Oklahoma City industrial market saw vacancy tighten slightly in 2009.

· Absorption totaled a negative 140 million square feet last year – the amount of space given up by occupiers with move-ins and move-outs netted out. Fourth quarter absorption was a negative 16 million square feet, the shallowest decline of the year. Northern and Central New Jersey occupiers gave up 22 million square feet in 2009, well behind second-to-last place Atlanta where negative absorption totaled 11 million square feet.

· Space under construction plunged for a ninth consecutive quarter with a minimal 11.5 million square feet still under way at year-end. This represents a little over 0.1 percent of the standing inventory, the lowest ratio since Grubb & Ellis began tracking the U.S. industrial market in 1986. Dallas-Fort Worth led all markets with 1.6 million square feet still to be completed. Five other markets each had more than 1 million square feet remaining in the pipeline: Philadelphia, California’s Inland Empire, Oklahoma City, Phoenix and Houston.

· The average asking rental rate for all types of industrial space offered on the market at year-end was $5.21 per square foot per year triple net. This was a decline of 2.2 percent in the fourth quarter and 6.8 percent in 2009. Among the three major property subtypes, asking rates fell last year by 9.1 percent for R&D-flex space, 7.1 percent for warehouse-distribution space and 3.0 percent for general industrial space (primarily manufacturing).

Forecast

Industrial is likely to be one of the first, if not the first commercial property type to bottom out and embark on a recovery. The reason is that occupier demand for industrial space is less dependent on job creation, a lagging economic indicator, compared with the office, retail and apartment markets.

 Moreover, the drivers of demand for industrial space – production activity, freight shipments and global trade – have bottomed out and begun to grow again, at least tentatively. This is reflected in the steady moderation of vacancy increases and negative absorption in recent quarters.

The trend line suggests that industrial vacancy could peak as early as mid-2010 and embark on a gradual, multi-year recovery cycle late this year or early 2011. However, a return to equilibrium remains several years away.

Contact: Janice McDill, Vice President, Public & Investor Relations, Grubb & Ellis Company, 500 West Monroe Street, Suite 2700, Chicago, IL 60661. Direct: 312.698.6707• Fax: 312.698.5941, janice.mcdill@grubb-ellis.com,  http://www.grubb-ellis.com/