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Monday, October 13, 2014

Industrial Development: A Key Contributor to the Commercial Real Estate Recovery

By: Rand Stephens

U.S. manufacturing is thriving again, returning the demand for industrial space to pre-recession levels. The U.S. industrial sector is leading the commercial real estate recovery with historically low vacancy rates and expanding speculative construction. Developers are far more disciplined than the prior cycle and the portion of speculative development has only recently become more in line with a healthy real estate market. Given current demand, it does not appear that rents will peak or experience a correction anytime soon even with new speculative deliveries. So, what is driving industrial real estate development?

Industrial production, which correlates highly with industrial demand, rose to a record level at the end of 2013 and continues to advance through 2014. As manufacturing sciences progress and consumers expect a quicker delivery of products, warehouses and distribution centers are adapting which translates to renovating existing structures as well as new construction.

In the Houston market, the expansion of oil and gas manufacturing and equipment storage facilities has always driven the city’s industrial market. Current events in the Middle East have created a renewed focus on domestic energy production as well as, potentially, the export of energy commodities thus cementing the demand for industrial space. Apart from energy exports, the market for industrial space near the Port of Houston is being further strengthened by the expansion of the Panama Canal in 2015. 

Houston’s overall industrial vacancy rate decreased in the third quarter, landing at 4.5 percent. The outlook for the remainder of 2014 continues to look good for industrial development, with strong year-over-year growth.

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