Increases in warehouse development may occur

Warehouse development may rise.

While property management companies experienced slower demand in the warehouse market during the third quarter, this will likely change in the coming months, according to a report completed jointly by CoStar and Property and Portfolio Research.

The warehouse market had more than 47 million square feet of development during the third quarter, which was 3 percent higher than one year earlier. There was also approximately 17.5 million square feet of net absorption last quarter, the Third Quarter Industrial Review and Outlook, compiled by the two firms, showed. The level was still less than both the previous quarter and same quarter one year earlier, as net absorption rose to 25 million and 36 million square feet, respectively.

While the numbers haven't been as high, the report explained this may suggest a certain level of overbuilding.

"If there's one thing keeping us up at night, it's the swelling project pipeline in planning," said Shaw Lupton, senior economist for PPR. "We see a critical mass of demand for large blocks of space out there and that means the building stage of the cycle is fast approaching. While as a percentage of total space it’s very muted, there’s a substantial amount of space just waiting to go up."

Market activity should respond to high inventory
Even with the increases in warehouse inventory, some declines in vacancy surfaced this year. The report showed the national vacancy rate declined to 9.2 percent last quarter, but is 0.7 percent lower than the third quarter of 2011.

Regionally, the figures improved, as well. There was 115 of the 210 metropolitan statistical areas examined that have a positive absorption level last quarter, according to the report. This was more than 31 million square feet of absorption during the quarter. Another 95 markets had a negative absorption level, but this was 14 million square feet. Additionally, fewer companies moved during the quarter, and there was a lower level of closures.

The report added that demand will increase through the end of this year and continued through 2014 in the markets examined. Additionally, new construction will start to increase by the end of 2013.

The development market improved in September as well. According to the American Institute of Architects, its Architecture Billings Index rose to its highest level since 2010. The index jumped to 51.6 from the previous month's 50.2, which showed billings for architectural projects rose.

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