We spent a bit of time this week gathering and updating info on the local industrial real estate market and thought we’d share our finding with our readers.
Our concentration was onWarehouse and Flex Space. While many non real estate types are familiar with the termWarehouse (a large commercial building used primarily for storage of goods, but also manufacturing, etc.), many may not be know thatFlex Space is simply a one story (non-elevator) warehouse with a loading dock that offers more “flexibility” for the occupants to utilize all or part of the area for a combination of office, showroom, laboratory, manufacturing, storage, etc.
Frederick County, Maryland currently has a combined total of about 16,000,000 square feet (SF) of Industrial space under roof. Of that a little over 10,000,000 SF is warehouse and a bit less than 6,000,000 SF of flex.
As of the end of the 2nd quarter of the this year just shy of 1,700,000 SF of local warehouse space was vacant (16.5%), while flex showed a 22% vacancy rate with 1,260,000 SF vacant … both of which include owner occupied space. In each case the net combined year to date absorption (net new leases) of space was a negative figure of just less than 100,000 SF … in other words there was that much more occupied space at the end of 2009 than there was by midyear 2010.
As a matter of comparison there was about 31% less (540,000 SF) vacant space in 2007.
When one deducts the amount of owner occupied properties from these calculations, the vacancy rate for warehouse increases to around 23% and 36% for flex. These figures are based upon a study conducted near the end of the first quarter of this year by Terrence “Bud” McPherson, an MAI Appraiser located in Frederick, Maryland. He suspects that these figures will be slightly higher when he completes his third quarter study.
With the increase of vacant space over the last 3 years the rates for “Direct” lease renewal (relet) and “Sublet” space has dropped about 24% from an average of $7.22/SF to about $5.50/SF as of the end of June 30, 2010.
While the Frederick area has experienced a drop in occupancy and renewal/sublet rates, this is typical for the rest of the Washington, DC Metropolitan area. The question that stands in front of the beginnings of a climb in these rates is: When will this market bottom out? And that is for another post on the MacRo Report Blog.