In spite of an economic recovery that seems to be progressing at a snail's pace, there's plenty of demand for industrial warehouse space and modern distribution centers in North America, according to a new report.
The vacancy rate in North America declined for the eighth straight quarter in Q1 2013, according to Colliers International.
The vacancy rate in North America dropped 20 basis points to 8.2 percent, the Seattle-based commercial real-estate firm said in its "Global Industrial Midyear 2013 Highlights Report."
Canada's vacancy rate stands at 4.1 percent, according to the report, while Mexico's vacancy rate increased slightly to 3.5 percent.
"While the North American market has seen solid performance, from a global perspective, industrial market activity has been somewhat patchy through the first half of 2013," said KC Conway, U.S. chief economist for Colliers International.
Conway noted that Hong Kong and Sydney are nearing full occupancy, while markets such as Seoul "are experiencing uneven industrial demand."
However, through the rest of 2013, Conway said the firm expects to see "market resilience, increased demand for logistics and distribution center space, and development driven by build-to-suits."
The report identifies a number of global trends, including:
- Strong demand for modern, build-to-suit warehouses—Institutional investors' anxiety about the multifamily market has spurred demand for modern warehouse properties near ports and inland distribution centers. New space is often build-to-suit for major retailers and manufacturers, as an estimated 40 percent of existing U.S. warehouse space is old enough to be considered functionally obsolete.
- Construction booming in Mexico—Economic growth has been decelerating in Mexico, and several Mexico City warehouses were vacated in the first quarter. However, 14 industrial properties are under construction in the market, and once complete, they will add more than 1 million square feet of inventory. An additional 1 million square feet is in the planning stages, and expected to be complete by 2015.
- A maturing South American market—While Sao Paulo seems to have stabilized, the Bogota market absorbed more than 2 million square feet of warehouse space in the second half of 2012, which was 28 percent more than the same period in the previous year. Since 2008, industrial developments have moved toward the city's outskirts, producing 99 percent of available land. In fact, roughly 570 acres of land are available in the market—the highest ever recorded.
- Long-lead lease renewals in China—Long-term increased consumer demand will drive the need for high-quality logistics properties throughout Asia Pacific industrial sectors. While some construction projects aimed at alleviating growing pains are in the works, several are not expected for completion until 2014. As a result, many logistics companies, for example in Hong Kong, have had to negotiate with landlords for lease renewals about one year ahead of lease expiration.
- Indian investment in multi-brand retail trading—Economic growth remained stagnant in India. However, industrial activity is slated to improve after a 51 percent foreign direct investment in multi-brand retail trading goes into effect, along with the government-proposed national investment and manufacturing zones.
- Prime-rent increases in Germany—The availability of modern space across Germany is limited, which has driven prime-rent increases in major cities. Munich in particular has seen growth among automotive manufacturers, while the high purchasing power in the region has given retailers the opportunity for expansion.
To download the report, visit Colliers International's website