Cassidy Turley: Industrial Sector ‘Robust’ But Office Sector ‘Skittish’

Cassidy Turley: Industrial Sector 'Robust' But Office Sector 'Skittish' The industrial sector of the commercial real estate industry has completed the third quarter appearing ‘increasingly robust,’ while the office sector ‘shifted into lower gear as businesses became increasingly skittish about the upcoming elections and looming fiscal cliff,’ according to new data released by Cassidy Turley.

Net demand for industrial space registered at 27.5 million square feet in the third quarter, up from the 20.1 million square feet in the previous quarter. The third quarter figure was one of the strongest, according to Cassidy Turely, with businesses leasing up to 166 million square feet of additional industrial space over the last 21 months, the equivalent of filling up more than 900 individual structures.

‘The industrial sector has now leased up more space than it shed during the recession,’ says Cassidy Turley in its latest report on the sector. ‘U.S. industrial vacancy rates fell by 10 basis points (bps) from the previous quarter to nine percent. Vacancy is currently down 100 bps from its recessionary peak.’

However, industrial sector rents remain at ‘stubbornly low levels,’ with the average asking rent at $5.02 per square foot in the third quarter, down two cents from the previous quarter.

In the office sector, Cassidy Turley reports that net absorption slowed to 6.5 million square feet in the third quarter, down more than 50% from the previous quarter.

‘Unlike during the first half of the year when the majority of markets reported steady gains in occupancy, the third quarter revealed a general softening in demand,’ says Cassidy Turley in its new report on the sector. ‘Of the 80 metros tracked, 43 markets reported either negligible gains or negative absorption. The national U.S. vacancy rate, which has been trending downward for several quarters, declined 10 bps from the previous quarter to 15.6 percent.’

Cassidy Turley adds that U.S. office rents were ‘flat at $21.69 per square foot.’ However, some bright spots were located in the Atlanta, Houston, New York and San Jose markets, which all registered over 1 million square feet of net absorption during the quarter.

Cassidy Turley notes that the office sector's health is being determined by circumstances beyond its immediate control, particularly the global economy, the November elections and the threat of the U.S. economy going over the fiscal cliff if Washington's political rivals are unable to resolve the long-simmering budget problems.

‘With so much riding on critical policy decisions regarding sequestration, taxes, the deficit, healthcare reform and financial regulatory reform, businesses are shifting collectively into wait-and-see mode,’ the report adds. ‘What is particularly unusual about this election are the wildly different scenarios that may occur based on who is elected and the immediacy of the key issues.’


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