Rebound begins in Lakeland industrial market

LAKELAND - Signs of an economic recovery began to emerge in the Lakeland-Winter Haven metropolitan statistical area during the first half of 2010. The unemployment rate decreased seven-tenths of a percentage point to 12% from year-end 2009 through May 2010 and employment increased by a net of 100 new jobs.

Although the year-to-date job growth is not very impressive, during the months of April and May employment grew by a total of 2,560 new positions. Furthermore, Moody's|Economy.com has projected retail sales are to increase over the next two years, which will further drive demand for industrial space as companies will need more room to store goods.

These positive signals that the economy has begun to recover led to improvement in the Lakeland industrial market during the first half of 2010. Leasing activity increased substantially over the same time period in 2009, overall vacancy, particularly in the second quarter of 2010, significantly decreased and overall absorption turned positive.

Overview

Overall vacancy in the Lakeland industrial market at the close of the second quarter of 2010 registered 5.7%, a decrease of 1.8% from the first quarter of the year, though when compared to mid-year 2009, overall vacancy is up four-tenths of a percentage point.

A recent increase in tenant demand from companies who already occupy space within the market and an uptick in demand from companies new to the market is the primary reason for the recent decline in overall vacancy. This increase in tenant demand caused overall absorption for the second quarter to post positive 463,115sf, bringing the year-to-date absorption figure back in to positive figures, with a total of 456,175sf of absorption at mid-year.

Leasing activity totaled 550,387sf from January through June 2010, an increase of 67.3% from the paltry 180,212sf of leasing activity recorded during the same time period in 2009. Leases in warehouse/distribution space, which accounts for more than 64.3% of the Lakeland market's industrial inventory, contained an overwhelming majority (89.8%) of the new and expansion leasing activity during the first half of 2010.

Some noteworthy leases which occurred over the last six months include Ta-Chen's 140,000sf lease in First Park at Bridgewater, Premier Transportation's 70,400sf lease in the Parkway Corporate Center and the 48,000sf lease by Keymark in the Ruthven Business Park.

Although there has been a significant escalation in tenants actively in the market for new or expansion space, diluted leasing volume during 2009, as well as in the first quarter of 2010, continued to foster a downward trend in asking rents, which fell for the seventh quarter in a row.

Marketwide, the direct net asking rental rate averaged $4.18 psf at quarter-end, a decline of $0.15 psf from the first quarter and a decrease of $1.11 psf from the average posted at mid-year 2009. Most prominent are asking rents in warehouse/ distribution space, which continue to spiral downward, falling to an average of $4.22 psf at the close of the second quarter. When compared to Lakeland's historic warehouse/ distribution rents, the second quarter's average rent decreased $0.89 psf from this time last year and have not been at this low of an average since the fourth quarter of 2005.

Forecast

Although the substantial job losses and numerous move-outs have taken a toll on the Lakeland industrial market during the past two years, industry professionals are positive that the area has slowly begun to rebound, with a more significant recovery of market fundamentals projected to take place in the latter half of 2010 and into 2011.