Industrial: Two Sides of the Coin

DALLAS-Examining industrial market Q4 statistics is akin to Dickens' "A Tale of Two Cities." Depending on which report is being analyzed, absorption is either in the negative regions, signaling some struggles or relatively positive, signaling that bottom has been hit.

On the downside, Cushman & Wakefield of Texas Inc.'s Year-End 2009 Industrial Market & Submarket Statistics Report notes that absorption was at 1.8 million square feet during Q4. Still remaining in the pipeline is 626,130 square feet. The quarter's vacancy stood at 12.5% out of a 508-million-square-foot inventory.

Transwestern's Outlook for Q4 also shows negative absorption at slightly over one million square feet. Vacancy is just over 12%, with approximately 1.2 million square feet under construction and an inventory of close to 702 million square feet.

"We were hoping it would be slightly positive. We haven't had a negative net absorption in quite some time and we were disheartened to see the year at a negative," Jean Russo, senior director with Cushman & Wakefield of Texas Inc. tells GlobeSt.com.

On the other side of the coin is CB Richard Ellis' MarketView. In this report, absorption stood at a little more than 433,000 square feet, with the inventory reported at 714 million square feet. The vacancy rate was 11.3% and 3.1 million square feet are under construction. CB Richard Ellis First Vice President Steve Berger tells GlobeSt.com that the results were not surprising. "We'd been feeling as though activity had turned positive later in the year," he comments. "While the absorption is a small number, it does show examples of some growth."

Certainly, the differences in the absorption figures can be pinned to different tracking methods used by each company. However, one thing on which all the reports -- and brokers – agree is that dwindling product in the pipeline should help increase absorption and decrease vacancies in 2010.

Berger points out vacancies have been pushing upward throughout the market, due to construction deliveries during the past two years. Russo agrees, suggesting that the good thing about industrial product construction is it's relatively easy to turn off the spigot once the marketplace gets saturated. There was record construction in 2008, she points out, with some of that falling into completion in 2009. "When you have only 626,000 square feet under construction," she adds, "that's significant."

The result, both brokers note, will be positive net absorption at this time next year. . "Looking into 2010, with construction substantially less than in the past, so long as absorption remains positive, we'll see a stable or declining vacancy rate," Berger notes.

Russo believes that real changes, such as declining vacancy rates, will start occuring during the second half of 2010, so long as construction remains cut off, though cautions that some submarkets are trailing behind others and might be slower to recover. Irving and Coppell, just west of Dallas, have the highest amount of construction, and could struggle to see positive net absorption, she adds.