Last week I was talking to a client who was lamenting that his firm had attempted to buy a vacant, “average” industrial bulk warehouse property in an “average” market on the East Coast. There was nothing exciting about this particular market or building. He could not explain why there was so much activity on such a run-of-the-mill property. But with 13 bidders on this building, his firm was not successful in its acquisition attempt.
Locally there have been only a few vacant building transactions by investors. However, fully leased core properties are currently being purchased by institutional and private equity at prices and cap rates that seem as if the financial crisis never happened. There is a lot of competition for these assets in the investment community. Frustrated buyers here will begin to bid prices up on well located, modern, vacant buildings.
The Dallas-Fort Worth industrial market is sneaking up on a healthy year for absorption. According to CoStar, we are on track to absorb 12.4 million square square feet in 2011. To put this in perspective, this would be the best year for absorption since 2007 and on par or better than all years from 2000-2005. The average vacancy rate for years 2000-2010 has been 9.78 percent. At the current rate of absorption it’s only going to take three quarters to get from our current 11 percent vacancy rate back to this average. Not a bad comeback.
Most agree that the first few months of the year were great for industrial activity. Some out there are saying the activity for the balance of the year is going to be much slower, and that we may be going back into a double-dip recession. That is unlikely.
No doubt we are in a soft patch. Temporary factors have set us back somewhat such as the debt crisis, a spike in oil prices, and the disruption of the high-tech and electronics supply chain from the Japan earthquake/tsunami. With many of those factors behind us, we should be in for a resumption of healthy leasing activity.
My bet is that speculative industrial construction will not be far behind when prices for those vacant buildings start to approach the cost for new construction.
Jim Hancock has served as managing director and senior advisor for Sperry Van Ness since 2006. He also currently serves on the board of North Texas CCIM. Contact him at [email protected].
