The Jones Lang LaSalle industrial property clock illustrates where each market sits within its real estate cycle. Markets generally move clockwise around the dial, with those markets on the left side generally facing more landlord-favorable characteristics whereas those on the right experience generally tenant-favorable conditions. At the end of the third quarter of 2011, several markets that have been experiencing falling rents have now pushed closer to the 6:00 timeframe, signaling the bottom of the rental pricing market for the industrial sector, while some lagging markets made a little more forward progress. A handful of markets experienced a slight, and potentially only temporary, reversal in trends, and moved a step backward on the clock this quarter.
The aggregate position on the clock for the United States has reached the bottom of the market last quarter and while there was a marginal quarter-over-quarter uptick in total average asking rents, that position did not move in the third quarter. There are increasing pressures on rents in the ‘big-box’ sector as it continues to tighten, and as existing large-block options become fewer and fewer for prospective tenants entering the market. In a growing share of markets throughout the country, face rates and asking rents have stabilized in the top tier market segments. Additionally, net effective rents are closing in on a bottom in this increasingly tight segment, especially as rent abatement concessions are being curtailed and other offered tenant improvement allowances are becoming less prevalent.
Rent growth has now returned to more markets, especially those with either logistics infrastructure and the need to service a large captive population base have kept upward pressure on demand for warehouse and distribution space, or where leasing activity for larger blocks of space has created an environment in which supply is becoming constrained and demand more competitive for the remaining available options. While improvement in the general industrial market, although initial and moderate, may be held back if economic conditions continue to falter. However, it is likely that the ‘big box’ sector will continue to tighten, and in the wake of little new speculative construction in the near-term, will further bifurcate from the rest of the market and experience some level of rent appreciation.