Industrial real estate recovering amid commercial tenant demand for new space

Demand for larger distribution facilities and large block industrial properties has driven new development.

Commercial real estate construction companies are firing back up the industrial speculation arm as large, class-A distribution spaces are diminishing from key markets call for new developments.

According to data from CBRE, markets including Boston, Chicago, Dallas and Denver have a dwindling supply of class-A industrial assets, a reality that is increasing rents and pushing development companies back into the construction space. Cities like Cleveland and Minneapolis, among other Midwestern markets, are balancing rising demand with a handful of class-A industrial properties the size that tenants desire, making them prime areas for expansion.

"In Midwestern markets where there's been very little development, it's getting to a point where you just don't have a lot of large blocks available," Douglas Swain, vice president and general manager of Opus Development, told National Real Estate Developer. "With more new multi-tenant space coming, it's really an indicator of where the market is. I think there's just a lot more comfort that these markets can support speculative space. Plus, when compared to other property types such as office and retail, it's easier for speculative industrial to come back first, there's just a lot more flexible building options."

Nationwide, the industrial property availability rate decreased to 12 percent, a full 3 percentage points less than recessionary levels in 2010, and nearly 1 percent less than the second quarter of 2012. In areas of tight distribution availability, demand for larger, built-to-suit properties featuring more than 500,000 square feet. Multi-tenant space in large block speculative property is also trending among commercial tenants, according to data from CBRE. 

Pennsylvania's industrial real estate
While major metro areas are experiencing stronger fundamentals, regional markets in Pennsylvania have seen marked improvements in their industrial real estate sector. The Central Penn Business Journal reported central Pennsylvania's market is improving at a slower rate than the Lehigh Valley or northeast market but the state is experiencing overall gains in vacancy.

For instance, the Pennsylvania I-81/I-78 market's vacancy rate dropped to just 8.2 percent during the second quarter from the previous quarter's 9 percent. It fell 0.6 percent from the same time last year, according to data from the commercial real estate advisory firm, Newmark Grubb Knight Frank. Gathering even more strength, the Lehigh Valley's vacancy rate fell to 6.4 percent – a market that is expected to expand with well planned development throughout the next year.

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