ProLogis Warehouse Report Shows Declines in Activity

Vacancy rates have increased while utilization and new construction of distribution facilities have fallen in the past year, according to a Sept. 21 report on industrial property trends by warehouse operator ProLogis.

Vacancy rates hit 10% in the second quarter, compared with 7.6% in that period of last year. New construction fell to just

5 million square feet in the first half of 2009 from 92 million in that period of last year. The amount of warehouse space being used fell by 33 million square feet, declining for a third consecutive quarter.

“As the U.S. economic recession has continued to deepen, so has the cyclical downswing in the distribution property leasing markets,” said Len Sahling, first vice president of ProLogis’ research group. “The good news is that the rate of decline moderated during the second quarter of 2009, and the U.S. economy appears to be poised for recovery beginning in the third or fourth quarter of 2009.”

At this time last year, the amount of warehouse space in use was still rising, increasing by 7 million square feet in the third quarter, or about 2.3 million square feet a month. During 2007, the amount of space in use grew by nearly 12 million square feet a month.

“Since the real estate cycle typically lags behind the economic cycle by a few months, property market conditions are unlikely to exhibit material improvements until next year,” he said in the statement.

“Whether demand for distribution space stabilizes at the current level or shrinks further will depend critically on how well the U.S. economy performs,” the report said.

The report includes 31 of the largest markets in the United States and Canada, and compares activity in the first half of 2009 with the same period of last year. In a statement, ProLogis said the report was based on information from its own workers and sources such as brokers and information services.

On average, the rental rates requested nationwide fell by 9.3%, with Tampa, Fla., showing the biggest decline at 21% and Houston showing the biggest increase at 3.7%. Rates fell in all but three areas.

ProLogis’ report cautioned that new starts at the current rate of 10 million square feet for 2009 fall well short of the pace needed to replace obsolescent facilities.

Credit worries were part of the picture.

“Developers have sharply curtailed groundbreaking for new facilities,” the report said. “Credit markets have eased a bit in recent months, but lenders remain ex-tremely tight-fisted.”