Comparing the lull of the industrial real estate market to the football offseason, experts at this year’s Trends in Real Estate seminar say the market should pick up with $19 billion worth of projects expected to start this year.
The vacancy rate for the industrial market was 7.27% in 2018—up from the 5.71% rate the previous year, with total vacancy increasing to 2,166,879 square feet last year, up 490,000 square feet. Net absorption also slowed substantially, declining to 78,882 square feet last year from 2 million square feet in 2017.
Despite an increase in vacancy rates and slowed absorption, the industrial real estate market remains healthy, says Ryan Greene, with NAI/Latter & Blum, who studied the sector for Trends.
The market slowdown experienced in the second half of 2018 was from the region coming off a major industrial boom that saw $15 billion worth of projects completed in 2017, and another $3 billion under construction in 2018. But the market is set to pick up soon, says Greene, with another $19 billion projects in the beginning stages of development.
“We’re in a trough in between projects,” Greene says. “Wear some sunscreen, enjoys the rays, because the offseason is about to be over and you’re going to need the energy on the other side.”
Meanwhile, the multifamily market is also grappling with higher vacancy rates and absorbing the surge of new apartments coming online, especially in the student and “class A” sectors, which appraiser Craig Davenport of Cook, Moore, Davenport & Associates says is overbuilt.
“Winter is here,” declared Davenport, who has predicted for years that the surge of student housing would affect the city’s ability to absorb new units.
Parishwide vacancy rates are 9.34%—with the student “class A” market averaging a 19% vacancy rate. Roughly 2,400 units are proposed for construction in 2020 and 2021, with some 1,400 considered likely to happen, which Davenport expects to exacerbate the problem.
After three years (excluding 2017) of flat rental rates, rent has dipped 2% since last year, while concessions offered by apartment management are increasing. Last year, concession rates grew to 40% from 20% recorded in 2016. The current rate sits at 42%, according to Davenport.
Looking forward, Davenport expects rents will continue to decline while the vacancy rates and concessions grow. He also says to keep a close eye on the affordable apartments submarket that has several new developments planned, which could turn potentially overbuild that market as well.
“It’s a challenging period right now for a lot of apartment complexes,” says Davenport.
