Forthcoming changes in international accounting standards have heightened the sensitivity of real estate on the corporate balance sheet and this, together with the ongoing drive to reduce liabilities and concentrate on core business, will lead to more and more discussions between FCOs, the investment banks and property specialists. A significant upswing in capital flows is forecast as the real estate friendly capital markets seek stock from a corporate environment keen to redefine its approach to real estate as a factor of production.
This can likewise be carried out utilizing online valuation apparatuses; at last this manifestation of valuation gives the dealer a measuring stick to evaluate any future expert property valuer. The anticipated growth in this sector over the medium term is expected to help maintain a high level of interest for office space in the city.
On the demand side, industrial absorption is linked not to job creation, which is a lagging economic indicator, but to manufacturing, inventory levels and retail and wholesale activity, which send goods and materials flowing through the corporate supply chains. Productivity, which has enabled businesses to produce an equal or greater quantity of goods with fewer inputs of labor and other resources, has boosted demand for modern industrial space.
Companies have achieved savings by rationalizing their distribution networks and consolidating multiple facilities into fewer state-of-the-art buildings in the ‘Big Five’ distribution hubs of southern California, Atlanta, Dallas, Chicago and New Jersey. Smaller, nearby markets have become major distribution hubs in their own right, siphoning some of the overflow demand from the Big Five by offering cheaper land and equal or better access. These include Reno in the Southwest, Charlotte and Louisville in the Southeast, Columbus and Indianapolis in the Midwest and Lehigh Valley in the Northeast.
The three-year slide in the US manufacturing sector, aggravated by the outsourcing of jobs overseas, has hurt the industrial market. The vacancy rate rose from a shade under 6 percent in the first quarter of 2001 to just above 10 percent in the first quarter of 2003, although this is well below the record 13.7 percent that occurred in 1992 following the last recession.
Rental rates were soft through 2003. The average asking rent for warehouse-distribution space slid 8.3 percent with most of this drop concentrated in the first half of the year, while the average R&D-flex rent slid by 3.7 percent. But 2003 brought some stability to the industrial market and, by the end of the year, some signs of recovery. The vacancy rate began a slow descent, ending the year at 9.7 percent.
Property valuation has ended up particularly pricey as more institutional financial specialists have entered the stockpiling toward oneself business. Sturdy consumer spending supported demand for distribution space from consumer products companies and their third party logistics outsourcing partners, benefiting Riverside-San Bernardino, New Jersey and other industrial markets serving major population centers. While problems in the manufacturing sector have weakened manufacturers accounted for less than one quarter of industrial leasing activity in the past three years. In 2003, companies engaged in trade, transportation and utilities accounted for nearly half of all activity.
One sign of concern is an early increase in the amount of speculative space under construction which has risen from a nadir of 53 million square feet in mid-2002 to above 60 million square feet at the end of 2003. Nearly 13 million square feet of this total is being built in Los Angeles County and the adjacent Riverside-San Bernardino area where burgeoning trade with China and other Pacific Rim nations has lit a fire under demand and created spot shortages of product.