Downward pressure continues on Polk industrial lease rates

LAKELAND - As we close out 2009, overall Polk County industrial vacancy stands at 13.9%, year-to-date absorption is negative, and average asking rates have softened again slightly. Overall vacancy ticked up by 330 basis points from this time last year. Much of this increase in inventory can be attributed to a handful of large blocks of space vacated this quarter in the East Polk submarket, with this submarket’s overall vacancy approaching 25%.

Almost 500,000sf or 10% of Polk County’s total vacancy is being offered for sublease. Almost 40% of this sublease is in East Polk, with sublease space approaching 300,000sf. When sublease space is pulled out, the total direct vacancy rate for Polk county stands at 12.5%.

We continue to witness downward pressure on overall asking lease rates registering $4.61 psf NNN in 4Q09. Despite this decrease, the overall average asking lease rate has fluctuated little from its 2006 highs.

After several years of healthy jumps in industrial inventory, the pipeline in Polk County has dried up. Years 2006 and 2007 witnessed 1.4 msf and 1.9 msf inventory jumps respectively, while 2008 and 2009 witnessed only 721,960sf and 251,400sf of additional inventory. Planned projects totaling more than 11 msf remain stalled as signs of an improved economy are being sought. Almost 25% of Polk counties inventory has been built since 2000. This newer inventory currently stands at 18.8% vacant, with asking lease rates standing at $5.13 psf NNN.

2009 witnessed more than $8 million in industrial property sales in Polk County. The price per square foot in 2009 averaged $43 with escalating cap rates. Each property averaged more than 170 days on the market, with some of these properties experiencing losses in asking-vs-selling rates greater than 10%.

Lease rates

Overall average asking lease rates for the Polk County market ended the fourth quarter 2009 at $4.61 NNN. This is a slight decrease from last quarter’s $4.89 NNN, a further decrease from 4Q08 average rate of $5.13 NNN but not that far away from Polk’s highest average rates, recorded in 2006, of $5.28 NNN.

Manufacturing asking lease rates are down from year-over-year rate of $5.45 NNN. Warehouse/distribution asking lease rates are down from $4.98 NNN from one year ago. R&D/flex average asking rates are also down from its year-over-year rate of $6.55 NNN.

Absorption

Polk County added an additional 580,188sf of negative absorption, bringing our year-to-date absorption to 833,878sf of negative absorption. This marks the fifth consecutive quarter of negative absorption for the Polk industrial market.

Several large blocks of space were added to the market this quarter, including more than 300,000sf of space vacated by International Paper and 100,000sf of space vacated by Packaging Corp. of America.

Construction

One building was delivered this quarter, adding 26,400sf to the West Polk submarket. 3515 Reynolds Road in Lakeland, a 26,400sf warehouse/distribution building was completed and is currently 100% vacant with asking rental rates in the $5 NNN range.

Two buildings are under construction in Polk County. Both buildings are warehouse/distribution facilities and will add 38,400sf to our inventory when delivered. They include 1121 Atlantic Road (12,000sf) and 3505 Reynolds Road (26,400sf). Several million square feet of development in various stages of planning remain stalled as we all watch for signs of any economic recovery.