While the industrial market is not a crystal ball, it typically is the first commercial real estate sector to rebound from a recession. And, according to Cushman & Wakefield's Jim Dieter, national trends heading into the second half of 2010 provide reason for cautious optimism about what the future holds across product sectors and the economy in general.
"The industrial market is showing positive signs, both 'on paper' and in market fundamentals," says Dieter, executive vice president, Industrial Brokerage, U.S. for Cushman & Wakefield. "While overall vacancy continued to climb during the first months of 2010 - resting at just under 11 percent at the end of the first quarter - 60 percent of the markets tracked by Cushman & Wakefield reported an increase in year-over-year leasing activity. Nationally, leasing activity increased 10 percent, to 60.5 million square feet, over the same period last year."
Dieter added that, in early 2010, construction completions reached their lowest point since Cushman & Wakefield started tracking. A lack of new product coming online and the expected continuation of steady leasing through the coming months should boost absorption numbers.
Positive trends in manufacturing and inventories suggest that the industrial recovery will continue to gain momentum, according to Dieter. "The Institute of Supply Management's Manufacturing Index, which serves as the benchmark on how the country tracks manufacturing performance, is coming into 10 straight months of improvement," he said. "We also are seeing that the universal 'destocking' - or inventory reduction - that has taken place among major companies through the down cycle is beginning to end."
Growing inventories usually translate to new and increased demand for distribution space. They bolster manufacturing and also benefit railroads and overseas shipping, which move the new inventory product across continents and states, Dieter explained.
Dieter added that other positive signs for the industrial market include reported growth in retail, auto and housing sales - all of which connect deeply with inventories and demand for distribution space.
"Looking at the industrial landscape and all the components that go into it, I believe there is reason to remain cautious but also regain a positive outlook about the economy for the balance of 2010 and going into 2011," he said.
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