HEARTLAND SNAPSHOT, NOVEMBER 2005

Quad Cities Industrial Market

The Quad Cities industrial sector has remained a soft market in 2005, experiencing slow growth throughout the region so far this year. Presently, there is little activity on the development front due to new construction costs and a surplus of existing industrial space, says John Ruhl, vice president and sales manager for NAI Ruhl & Ruhl Commercial Company.

New construction is primarily limited to individual build-to-suit transactions for users relocating from leased space. This is a strong trend in the Quad Cities area. “The trend is for local companies to purchase or build their own facilities and move out of leased space,” Ruhl says. “This is driven by low interest rates and inexpensive land and enables industrial users to reduce or maintain their occupancy cost, and enjoy an investment and income stream while upgrading the company's facilities and accommodating growth.”

Two recent acquisitions that reflect this trend are Murray Warehousing's purchase of the 175,000-square-foot Marley Pump Building in Davenport, Iowa, for $2 million and Paksource, Inc.'s acquisition of a 168,668-square-foot building from Weyerhauser for $1.11 million.

Leasing velocity is sluggish, but small amounts of positive absorption have continued. “There is frequent talk of local industrial firms pursuing new contracts and considering additional space, very little of which seems to lead to new space requirements,” Ruhl notes. The industrial warehouse inventory in the Quad Cities metro area totals approximately 7.91 million square feet. A large amount of the space is located within three large multi-tenant industrial centers: River Cities Business Park, River Bend Industrial Center and the former Eagle headquarters and distribution center. The most activity in the market is occurring in these parks.

The former Eagle facility in Milan, Illinois, has been renovated and reconfigured for multi-tenant use and has recently been home to some new deals. Group O Companies (84,000 square feet) and XPAC (33,870 square feet) have leased space within the 953,332-square-foot warehouse and distribution center.

The existing demand in the market is primarily for warehouse and distribution space versus manufacturing. Demand for manufacturing space is very low. A majority of the consideration given the Quad Cities industrial market is for large distribution hubs due to its trucking time to many major markets. The region has a difficult time attracting high-tech prospects.

Triple-net rental rates range from $1.50 per square foot for bulk warehouse space to $11 per square foot for higher quality high-tech and R&D space. The area vacancy rate for bulk warehouse space is 25 percent; manufacturing availability currently hovers around 20 percent. The small market high-tech industrial product has a vacancy of approximately 15 percent.

In the near future, Ruhl has noted that the Rock Island Arsenal, a military base slated for re-alignment, is a development to watch for increased attention from industrial users. A majority of the base is currently being used by the military but will likely be offered to the public at market rate in the future. With significant funds in place to retrofit the space, it is sure to draw tenants when available.

The Quad Cities industrial market will continue to improve with positive absorption in both manufacturing and distribution. High vacancies will remain through the year as the region combats oversupply with attractive pricing below national averages.

The market's turnaround is expected to build on its current growth and pick up speed in the near future. NAI Ruhl & Ruhl's most recent market report finds that new employment need is for approximately 27,000 employees. This stronger employment activity will drive more demand for commercial real estate in 2006.


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