CBRE: Office, Industrial Markets Improve Nationally During Q3

The U.S. industrial market also continued to show improvement during the third quarter, according to CBRE, with most of the demand coming from third-party logistics companies, the food service sector, home construction, automotive and automotive suppliers.

Miami maintained its third place position among the top U.S. industrial markets, with an 8.1 percent vacancy rate in the third quarter, down 10 basis points from the previous quarter.

“Despite rising interest rates and continued weak growth overseas, the U.S. office market continued to benefit from slow but steady job growth and limited new office development, which has allowed moderate leasing demand to cut the supply of excess space,” says Brook Scott, interim head of research for the Americas with CBRE.

“Meanwhile the U.S. industrial market benefited from consumer and business spending, a recovering housing market and increased demand for logistics space tied to the growth of e-commerce during the third quarter of 2013,” adds Scott.

Mary Jo Eaton, executive managing director of CBRE Florida, says that Miami’s industrial market “continues to be one of the top three markets in the country as a result of our strong international trade ties and significant investment in South Florida’s transportation infrastructure.” What follows is a closer look at both sectors.

Office Sector

The Dallas office market’s strong performance was driven by demand from the professional services sector, including insurance, information technology and financial services firms. Professional services and healthcare also drove a decline of 40 basis points in both Phoenix and Washington, D.C., which reported 23.5 percent and 14 percent vacancy rates, respectively.

Boston had the largest increase in vacancy, at 50 basis points, due to several large blocks of space becoming vacant.

While U.S. employment growth was below expectations in August and revised downward in June and July, the professional and business services sector has added 614,000 jobs during the past 12 months. Eight major office markets reported no new office space deliveries during the third quarter and the vast majority of markets reported an upward trend in rents.

Ten projects in Houston delivered 1.6 million square feet of office space during the third quarter, the greatest amount of all major markets, 75 percent of which was pre-leased, according to CBRE.

Industrial Sector

Additionally, industrial availability (defined as space that is actively being marketing and available for tenant build-out within 12 months) continued to decline in many major U.S. industrial markets. The industrial availability rates decreased in five of the 12 markets, while five markets remained unchanged from the previous quarter.

Boston witnessed the largest availability rate decline, with a drop of 50 basis points to 19.2 percent, followed by Dallas, down by 40 basis points to 11.9 percent. Demand for space in Boston was driven by the food sector as well as warehouse and distribution needs in the 50,000- to 100,000-square-foot range. Demand in Dallas was mainly from third-party logistics companies and e-commerce-related companies.

A common theme for most markets was a shortage of Class A space to meet burgeoning demand. Industrial rents have increased moderately in most markets and design-build activity remained strong with speculative construction gaining momentum.

In Chicago, there is currently 5.2 million square feet under construction, including 2.2 million square feet of speculative projects. In Dallas and Houston there is currently 10.1 and 7.8 million square feet of new construction underway, respectively.

Based in Los Angeles, CBRE Group Inc. is a commercial real estate services and investment firm with more than 300 offices worldwide.

— Staff reports