Demand for Industrial Space to Grow in 2012

Although third-quarter growth in the demand for industrial real estate was on the low end of historical norms ranging from 1-2 percent per year, it marks the fifth consecutive quarter of positive growth in industrial demand, following seven prior quarters of deep contractions.

While the current conditions remain in the normal category, strong demand growth isn’t expected until 2012, contingent upon the overall economy resuming more normalized growth, according to the NAIOP Research Foundation’s newly released Industrial Space Demand Forecast. This is the fourth forecast from a model that analyzes important economic factors and net absorption data to predict future demand for industrial real estate.

According to the data, the current annualized rate of growth (3Q2011) was 1.16 percent – in line with the forecast of 1.0 percent and consistent with the readings during the past several quarters that have ranged from 1-1.26 percent.

Therefore, the demand for industrial space will grow at an annualized rate of 1.09 percent in 4Q2011, which is at the low end of the normal range. Increasing rates of growth are expected to begin into 2012, barring exogenous shocks.

“Sluggish industrial demand signifies that the industry, and this property sector in particular, are reliant on much-needed growth in the national economy,” said Thomas J. Bisacquino, NAIOP president and CEO. “Although minimal, the positive growth industrial has experienced during the past several quarters is a small sign of optimism. It is evident that the industry won’t return to more normal rates of growth until the overall economy stabilizes and businesses begin to spend again.”

The Industrial Space Demand Forecast was calculated using the data in the following tables:

Table 1

3Q2010

4Q2010

Current Condition

Trend

PMI: Purchasing Managers Index

55.30

58.30

Strong

Up

PMI: New Orders

51.6

62

Hot

Up

PMI: Production

58.1

63

Hot

Up

PMI: Employment

56.9

58.9

Strong

Up

PMI: Deliveries

53.8

56.7

Strong

Up

PMI: Inventory

56

51.8

Normal

Down

1Q2011

2Q2011

IMO: Index of Manufacturing Output

1.79%

6.06%

Hot

Up

Table 2

2Q2011

3Q2011

Current Condition

Trend

PMI: Purchasing Managers Index

55.3

51.6

Normal

Down

PMI: New Orders

51.96

49.6

Normal

Down

PMI: Production

54.5

51.2

Normal

Down

PMI: Employment

59.9

53.8

Normal

Down

PMI: Deliveries

56.3

51.4

Normal

Down

PMI: Inventory

54.1

52

Normal

Down

2Q2011

3Q2011

IMO: Index of Manufacturing Output

3.8%

3.64%

Strong

Down

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