Industrial vacancy rates soared by 120 basis points to 10.7 percent in the second quarter, Grubb & Ellis Co. reported yesterday.

Fueled by the recession’s impact on the retail sales, global trade and the construction industry, the one-quarter gain was the largest since Grubb & Ellis began tracking national market data in 1986.

“The industrial market is not living up to its reputation for relatively moderate swings in leasing market cycles,” said Robert Bach, the company’s chief economist.

Vacancy rates were highest in Kalamazoo, Mich., at 19.7 percent, the report stated, and lowest is Los Angeles County at 3.1 percent, though the availability rate of 8.3 percent in that market indicates that the vacancy rate will rise as leases expire.

Between April and June, 43 million square feet of industrial space was vacated nationwide, compared with 40 million square feet of negative absorption in the first quarter. Only 12 of the 58 markets tracked by Grubb & Ellis managed to stay in the black, led by Denver with 813,000 square feet of positive absorption.

The data comes on the heels of another release by the company earlier this month, which reported that the size and length of industrial and office leases have fallen to their lowest level in 10 years.

Citing the credit crunch and overall recession as primary culprits, Bach said in the July 6 report that the average terms of office and industrial leases signed in the second quarter were the shortest in a decade at 52.3 months for office leases and 43.4 months for industrial leases.

Lease sizes signed in the second quarter also shrank to their lowest levels of the decade, averaging 8,648 square feet for office leases and 19,576 square feet for industrial.

Of all industrial leases in the first half of 2009, 43 percent were signed for spaces smaller than 50,000 square feet, compared with 37 percent in the first half of 2007. Spaces smaller than 10,000 square feet accounted for 29 percent of all office leases signed in the first half of 2009, compared with 24 percent in the first half of 2007, before the credit crisis and the recession hit.

“The recession and weak corporate profits are prompting many tenants to choose short-term extensions as their leases expire instead of new five-year leases,” Bach said. “These tenants prefer the flexibility of a shorter commitment to the generous terms on offer by many landlords who would prefer to lock in tenants for longer periods.”

The average asking rental rate for all types of industrial space offered on the market at the end of the second quarter was $5.54 per square foot per year triple net, down 2.7 percent from the same period last year. Over the last four quarters, landlord concessions such as free rent have lowered the average effective rental rate for industrial space by 22 percent.

The sharp quarterly increases may indicate that office and industrial market vacancy rates are on track to exceed their peaks of the early 1990s. The previous industrial vacancy rate record was 13.7 percent, set in the first quarter of 1992.

Vacancy rates for all four core commercial property types — office, industrial, retail and multifamily — experienced increases in the second quarter, Grubb & Ellis said, though retail and apartment vacancy rates rose at a more modest pace.

And though the four property types are expected to ride out the cycle together, the industrial market may rebound more quickly, Bach said, pointing to an upswing of global trade led by emerging markets, which could help support demand for light manufacturing and distribution space.

“Ironically, given the rapid pace of deterioration, the industrial market could be the first to turn around.” Bach said. “China’s efforts to rescue its economy – a $586 billion stimulus package and a robust expansion of credit by the state-controlled banking system – appear to be putting the country on track to achieve its gross domestic product growth target of 8 percent this year. This is a hopeful sign for U.S. exports and, by extension, demand for light assembly and warehouse/distribution space.”

Grubb & Ellis expects leasing market conditions to bottom in late 2010 or early 2011, followed by a sluggish recovery.