Percent Real Estate Vacancy – What Does it Mean?
You may also notice that the vacancy wheel is not linear. We have included five one-percent segments from center balanced market to lowest vacancy, but there are seven segments for high vacancy. Why the imbalance? When we have an active market with low vacancy and high rates, investment dollars tend to flow into the market and lots of new warehousing breaks ground to fill the space gap. This is fine assuming demand continues. But real estate is cyclical and overbuilt situations arise when demand slows. When that happens, it’s quicker to build a warehouse than it is to fill an empty warehouse with slow demand. And with a long construction lead time – eight to nine months to build a new warehouse – developers generally do not stop construction projects even though demands is waning, which means the vacancy can spike quite high until some inventory is absorbed.
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