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Part 5: Outlook for Rents

Part 5: Outlook for Rents

With development in check and occupancies rising, respondents are understandably bullish on the outlook for rents. The majority of respondents (79 percent) said they expect rents to rise in their region in the next 12 months. Only 4 percent said they think rents will decline. And 17 percent said they will remain flat. On balance, respondents expect rental rates to rise 3.3 percent in the next 12 months.

In the fourth quarter, asking rents increased by 0.6 percent and effective rents rose by 0.9 percent, according to Reis. That marked a slight uptick in the pace of rent growth. Overall, in 2014, “annual rent growth reached post-recession highs for both asking (+2.3 percent) and effective (+2.8 percent ) rents in the latest quarter. This is the widest gap between these two figures since early 2013, demonstrating that concessions are burning off as demand strengthens,” according to Reis.

“Less than 10 percent of the available land in the city of Los Angeles [is] zoned for industrial usage,” Heger Industrial’s Thornburgh says. “Whether via assemblage or within the envelope of an existing site, the redevelopment of older buildings is required in order to meet today’s supply issues. We expect demand to continue to outpace new supply in the coming year, benefiting landlords as lease rates continue to rise.”

The situation in the Dallas/Ft. Worth region is similar. “I think there are some companies that may have signed a lease five, six or seven years ago [that] are suffering some rate shock,” Gump says.

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