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For the first time in years we have seen the industrial real estate vacancy rate climb above 4%, despite the positive absorption that occurred during the second quarter 2020. A year ago, the vacancy rate was 3.9% so the industrial real estate market has remained relatively stable. For comparison, we saw the vacancy rate above 10% during the Great Recession of 2008. Some of this appearance of stability is resulting from large deliveries of new space and subsequent absorption of it in the marketplace, including activity from Amazon in Racine, Kenosha and Milwaukee Counties over the past 18 months. The office and retail sectors have slowed during the Pandemic but industrial seems to have ongoing, yet lower levels of activity.
Leasing, which can provide greater flexibility to a company than ownership, has actually increased as companies need to make decisions about their real estate strategies moving forward. Lease rates are attractive and landlords are willing to cut pandemic-era deals with new tenants or lease renewals. We are certainly seeing a higher rate of existing industrial properties coming onto the marketplace, but most of this is quickly absorbed due to pent-up demand and a scarce supply. The financial and capital markets are still functioning, with some additional risk premiums factored in to the cap rate, interest rates, and ROI expectations. We will continue to actively monitor the industrial real estate market so we can provide timely advice for commercial real estate decision making.
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