After some initial improvements in the first quarter, Reis’ Northern Virginia warehouse/distribution and Flex/R&D market indicators were mixed in the second quarter. Occupancy has improved in both sectors, but rents have generally lost ground. “The Northern Virginia Flex and warehouse market remained relatively unchanged for the second quarter of 2012,” according to Cushman & Wakefield. According to Transwestern, the Northern Virginia Flex/Industrial market experienced “improving conditions” during the first half of 2012.
Reis reports vacancy for Flex/R&D space at 16.0% in the second quarter, down 10 basis points from the first quarter and 180 year-over-year. Flex/R&D vacancy is generally higher than warehouse/ distribution. The current rate is 80 basis points lower than year-end 2010; so vacancy has generally remained in the 16.0% to 18.0% range for the last two years. July data from Reis show a 40-basis-point drop in the rate, which will mark a new low in the current cycle but still above this sector’s national rate of 14.7% for the quarter. For warehouse/distribution space, Reis reports second quarter vacancy at 6.7%, down 30 basis points for the quarter and down 170 year-over-year. July data indicate an increase of 10 basis points.
According to Cushman & Wakefield “the average overall vacancy rate dropped slightly from last quarter, down to 14.4%, but remains flat compared to the same time last year.” For Flex space in Northern Virginia, Cassidy Turley reports a second quarter vacancy rate of 13.5%, and 10.9% for warehouse space. Transwestern reports overall vacancy for Northern Virginia Flex/Industrial at 10.5% in mid-year, down from 11.6% one year ago. Reis predicts little reduction in vacancy going forward, with 2016 vacancy forecast at 6.6% for warehouse/distribution and 15.6% for Flex/R&D.
SUPPLY AND DEMAND
Both warehouse/ distribution space and Flex/R&D showed positive net absorption in the second quarter of 2012, Reis reports. Reis recorded respective net absorption totals for these sectors at 87,000 and 174,000 square feet for the quarter. These relatively modest performances come after first quarter’s warehouse/distribution total of 158,000 square feet ,while Flex/R&D recorded a remarkable 203,000, so the midpoint of 2012 finds a generally positive demand profile here. Reis reports two flex buildings have completed thus far in 2012, totaling 176,000 square feet. ProLogis Park Gateway, consisting of four Flex/R&D buildings totaling over 300,000 square feet, is planned for Pacific Boulevard and Sterling Boulevard in the Loudoun submarket.
According to Cassidy Turley, second quarter 2012 net absorption for Northern Virginia Flex space was negative 90,096 square feet, but positive 34,909 year-to-date. For the greater Washington, D.C. area, this source reports second quarter Flex net absorption at 308,008 square feet, and 428,286 year-to-date. For warehouse space, Cassidy Turley reports current net absorption at 75,045 square feet, and year-to-date at 236,615 square feet. Reporting on Northern Virginia, Cushman & Wakefield states that “overall net absorption for the quarter was positive due to ServiceSource, Amec, and SOC, Inc. all moving into their newly leased flex spaces at 14048 Parkeast Circle, 14424 Albermarle Point Place, and 43670 Trade Center Place, respectively. Year-to-date overall net absorption for the Flex market was 236,761 square feet. Overall absorption for the entire industrial market ended the quarter at 314,065 square feet.” According to Transwestern, net absorption of Flex/Industrial space in Northern Virginia totaled 722,000 square feet during the first half of 2012, compared to 69,000 square feet during the first half of 2011. During all of 2011, net absorption totaled 848,000 square feet, compared to the 10-year average of 1.0 million square feet, according to this source. Reis expects a weak second half of 2012, as net absorption for the year is forecast at little more than the mid-year total in either segment of the market.
Rents for both warehouse/ distribution and Flex/R&D space continue to post only small gains, according to Reis’ second quarter analysis. Reis reports average warehouse/ distribution asking and effective rents of $8.49 psf and $7.93 psf, up 0.4% and 0.6% for the quarter. For Flex/R&D space, Reis reports second quarter asking rents of $11.65 psf and effective rents of $10.54 psf. These rates are unchanged and up a barely noticeable 0.2% for the quarter, and down 1.1% and 0.4% for the year. July data show 0.1% and 0.2% asking and effective increases for Flex/R&D rents, while warehouse/distribution showed no changes.
Cassidy Turley reports a Northern Virginia average asking rent of $11.73 psf for Flex space and $8.28 psf for warehouse. Cushman & Wakefield, reporting on the overall Flex and warehouse market, reports that the direct asking rental rate “dropped slightly to $9.98 psf per square foot (psf), led mainly by a decrease in the Springfield Flex market, but overall is down only $0.01 from the same time last year.” For the D.C. industrial market, Newmark Grubb Knight Frank reports a total average asking rent of $6.59 psf. According to Transwestern, Flex/Industrial asking rents continued to make gains in Northern Virginia, climbing 1.5% during the first half of 2012, after rising 0.7% during 2011. “Each product type experienced an increase in rent,” this source notes. Flex/warehouse experienced the greatest rise during the first half of 2012, at 2.5%. Flex/R&D space experienced the lowest rise at 0.8% during the past six months, according to Transwestern. Reis expects warehouse/distribution rents to increase by 1.9% and 2.3 %, asking and effective, after which more substantial gains are forecast. Flex/R&D asking and effective rents have an even smaller annual increase on tap, at 1.5% for both. Not until 2015 are these rents forecast to pass 3.0% annual growth.
On the investment front, Reis shows four industrial transactions totaling $40.2 million at a mean price of $72 psf for the second quarter of 2012. With eight sales totaling $61.5 million so far this year, 2012 is already near 2011’s sales total (10) and has passed the transaction total ($55.5 million).