Lease rates must continue their steady increase to support new development. Rent increases which have traditionally averaged 3 percent per year are expected to increase even further for the near future, especially on small spaces. Due to the tight market, concessions such as free rent will also be limited. Tenants must be flexible in this market and be prepared to compromise on everything from location to size. 

Increased rates have allowed for new construction to pencil and even more speculative development is on the way. Vacancy may tick up as a result but will likely remain below 4 percent through the end of the year. Many new buildings are leasing before construction is delivered, such as the 52,500 square foot Beechcraft Building in the Airport submarket. Subsequently, absorption is expected to remain strong as construction is occupied immediately upon completion. 

As industrial lease rates rise and approach similar rents for retail big-box stores, some have suggested converting numerous vacant retail locations into industrial space. This would help accommodate tenant needs by increasing inventory; however, tenant improvement costs and highly trafficked locations would present challenges.

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*Above is an excerpt from Thornton Oliver Keller's Mid-Year Market Watch. For a free copy, email info@tokcommercial.com.