Delta: Industrial market in slow growth mode

February 26, 2012

The market for properties for industrial or flex uses — meaning office or industrial — in the Washington-Baltimore region was muted during 2011 compared to long-term averages, but improved over 2010.

About 1.4 million more square feet were occupied in 2011 than vacated (meaning positive net absorption) but that level was below the long-term average of 3.3 million square feet, as gains in leasing activity were offset by tenants vacating space. The overall vacancy rate inched down 40 basis points during the year, and market performance improved during the second half of the year. As such, asking rents made slight gains for the year, rising 0.2 percent, compared to a decline in 2010 of 3 percent.

We expect the market to continue its growth during 2012.

Northern Virginia

In 2011, the Northern Virginia flex-industrial market absorbed a net of 848,000 square feet, and the overall vacancy rate (including sublet space) declined 30 basis points to 11.9 percent. Rents edged up 0.7 percent.

We expect vacancy to decline to 10.7 percent by December 2012, as demand gradually picks up pace, particularly for data centers. Asking rents should gain momentum during 2012 — rising 1 to 2 percent. Overall, we expect Northern Virginia’s flex-industrial market to continue its recovery and remain desirable in the long run because of its location along Interstate 95 and proximity to Dulles Airport.

Suburban Maryland

The suburban Maryland flex-industrial market recorded just 56,000 square feet of net absorption during 2011. This market likely will remain stalled during 2012, given the current supply-demand balance. We project vacancy will edge up to 12 percent by December 2012, from 11.8 percent today. Given these conditions, we expect asking rents to edge down, declining 0.5 percent to 1.5 percent during 2012.

Overall, suburban Maryland’s flex-industrial market is well positioned for long-term, stable growth. Despite current sluggish market conditions, we expect this will be a short-term speed bump to future growth, given local transportation networks and high household incomes.

Maeve Gallagher is an associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.

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