Health returning to industrial property

Health returning to industrial property

30-05-2011

Industrial property is showing signs of a recovery with vacancy rates seemingly levelling off and rentals once again showing growth.

The graph that follows shows the strong tendency for unutilized production capacity in the manufacturing sector and industrial-property vacancies to move together over time. Note how the percentage unutilized capacity has been heading south since about the third quarter of 2009 and how industrial properties’ vacancy rates have been trending sideways from about the same time.

The explanation for this is, of course, that industrial-property space is one of the factors of production in the manufacturing process. As such, improvements in capacity utilization — on the back of a recovering economy — naturally bode well for the demand for industrial space. The levelling off of vacancies, in turn, augurs well for market rentals. In fact, in the first quarter of 2011, the growth in market rentals (on a national basis) accelerated to nearly 4%. This comes after a sharp cooling in growth and even, in recent quarters, a contraction in rentals. The final graph attests to the robust inverse relationship between industrial-property vacancies and the growth in market rentals.