After relatively flat demand for U.S. and South Jersey industrial space in the first nine months of 2014, absorption of industrial space in South Jersey and elsewhere in the nation is anticipated to rise in the last quarter of 2014 as developers deliver an estimated 50 million square feet of new warehouse and light industrial space to the market, according to a new report.
The stagnated demand for U.S. and Southern New Jersey industrial space in the first three quarters surprisingly included demand for warehouse space, which usually ticks up quarterly, but was consistent but unchanged in 2014, according to the analysis in the CoStar Third Quarter Industrial Real Estate Review and Outlook.
Tenants had virtually no new industrial space in Southern New Jersey or the nation to move into because of the low vacancy rate, the report said. The dozens of new industrial buildings that will deliver to the U.S. and Southern New Jersey industrial space market by December 31 encompass both properties built to suit and those built on spec, CoStar said.
The report also noted that logistics construction was increasing, with an estimated 100 million square feet of logistics under development throughout the nation. More developers were willing to build on spec because rising rents and demand justified the construction in most markets. More than half of the ongoing logistics construction has no signed sales or lease agreements in place. One estimate put the current level of construction at 30% below the market’s potential.
With rents rising at a higher rate than replacement costs, developers were spurred on to build to meet increasing demand for industrial space in South Jersey and the U.S. The U.S. vacancy rate declined to 6.9%, CoStar said, lower than it was at this point last year, and rents reached to within about 0.8% of their long-term trend.
Rents rose 3.4% over the third quarter 2013 in both the logistics and light manufacturing sectors of the market for industrial space in Southern New Jersey and the U.S., a very strong performance that nonetheless had notable differences between higher quality and less functional space, according to the report.
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