For the first two quarters of 2009, the vacancy rate for industrial/warehouse space in Chittenden County has been 9%. This is a very acceptable vacancy rate considering the depth and severity of this recession, and given that the historic average vacancy rate is 7.4%. Although we have experienced a net decrease in occupancy over the past 12 months, there are still local companies which have contributed to space absorption, such as Green Mountain Coffee Roasters and Blodgett Ovens.

The industrial market in this recession versus the last significant recession in 1989-1992 seems to be quite different. The 1989-1992 recession provided significantly more foreclosures, and bank-owned properties and vacancy rates increased to over 10%. It is widely believed that the Vermont State and Chittenden County economies tend to be insulated and lag behind national economic trends. This seems to hold true with many fearing that national economic impacts will still be chiseling away at our economic foundation after the rest of the nation has turned.

With the increased vacancy rates, lease rates are trending lower. Average industrial space is currently leasing at $4.50 – 6.00 per SF with the tenant paying the NNN expenses which will typically add another $1.50 per SF to the occupancy costs. A prime example of warehouse/ industrial space is 68 Nesti Drive in South Burlington. The other factors that favor lower lease rates are the cost of construction and cost of money, which have significantly been reduced in the last twelve months.

However, capitalization rates have recently increased. This is a bit unusual as the interest rates are historically low. Investors seem to be more cautious with their cash, and are looking to the capitalization rate for their return on money, not appreciation.

New supply in 2009 is projected to be limited with no new speculative projects planned and a few small owner-occupied driven projects. These projects will most likely contribute approximately 50,000 SF of space to the marketplace.

68 Nesti Drive, South Burlington:

http://www.redstonevt.com/Office-Warehouse-Industrial-For-Lease-VT-Commercial-68-Nesti-South-Burlington-Vermont/

Other exceptional Industrial Properties include:

133 Elm Street, Winooski:

http://www.redstonevt.com/Warehouse-For-Lease-VT-Commercial-133-Elm-1-Winooski-Vermont/

312 Commerce Street, Williston:

http://www.redstonevt.com/Office-Warehouse-For-Sale-For-Lease-VT-Commercial-312-Commerce-Williston-Vermont/

823 Ferry Road, Charlotte:

http://www.redstonevt.com/Office-Warehouse-For-Lease-VT-Commercial-823-Ferry-2-Charlotte-Vermont/

In our weekly Redstone brokerage meeting the topic of capitalization rates (CR) came up as one of our brokers stated that in the Boston market CR’s have risen by 150 to 200 basis points under market pressures. This means that an investment property that might have been at a 6% CR a year ago may now be trading at 8% providing a lower selling price and perhaps a better value for the Buyer. But is this really the trend we might expect as other investments like the stock market continue their volatility?

Another view is that a solid real estate investment property would become more valuable as market risks continue and thus CR’s could hold or even be reduced as investors compete for more predictable returns through commercial property ownership. What trends might we expect to see? Is the Vermont market place different from what we are seeing elsewhere?