The Jones Lang LaSalle industrial clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock, with markets on the left side of the clock generally landlord-favorable and markets on the right side more tenant-favorable.  Though leading indicators like manufacturing and retail sales appear to be bottoming, it will take some time for these improvements to translate into net new demand for industrial real estate. Average asking rents continue to contract in most markets, correcting for sustained shallow demand and nominal deal activity.

The third quarter marked a stagnant period for most industrial markets in the United States. Few markets moved significantly on the property clock, while some retreated marginally backward on the heels of increased discounts in rental values.  Nearly all markets are situated on the right-hand side of the clock, indicating tenants’ leverage and a window of opportunity to capitalize on cyclical lows in occupancy costs. Those markets in the middle of the “falling market” quadrant are still experiencing material reductions in average rents, while those rounding the middle half of this side of the clock are also experiencing falling rents, though at a decreasing rate of decline.  Sublease availability continues to erode values and leasing activity remains tepid.

It is expected that many of the markets will remain on the right side of the clock over the next 12 months given the negative overhang of job losses. Increases in manufacturing expansion, resumption of consumer spending and rebounds in global trade patterns will provide some upward lift to industrial property demand in key demographic, gateway and distribution markets in the latter half of 2010, allowing them to navigate more quickly around the clock. However, a sustained and material recovery will likely lag most of these indicators by several quarters, keeping market fundamentals relatively depressed heading into the early part of 2011.