Industrial Midwest

Industrial space demand slowly growing, with greater demand projected for 2012

The national industrial market experienced positive demand in the second quarter, but, like many other economic indicators, demand has softened when compared to previous quarters, according to The NAIOP Research Foundation.

The national industrial market experienced positive demand in the second quarter, but, like many other economic indicators, demand has softened when compared to previous quarters, according to The NAIOP Research Foundation.

The association’s Industrial Space Demand Forecast is a model that analyzes important economic factors and net absorption data to predict future demand for industrial real estate. The second quarter findings show that the current annualized rate of growth came in near 1 percent, which is slightly lower than the 1.1 percent growth in 1Q2011 and the 1.26 percent growth registered in 4Q2010.

This mirrors the activity of several key economic figures, such as GDP and unemployment, which have lost positive momentum recently and sparked fears of an ailing economy on the brink of a second recession.

However, while the study does predict weak demand to continue throughout 2011, 2012 should bring increased rates of growth.

According to the data:

  • 2Q2011 growth was on the low-end of historical norms that range from 1-2 percent per year.  The finding is consistent with that of the overall economy that has seen GDP growth that is still positive but below long-term averages.  In fact, 1Q2011 GDP growth was just revised downward to 0.4 percent and preliminary 2Q2011 GDP growth was a disappointing 1.3 percent.
  • 2Q2011 marks the fourth consecutive quarter of positive growth in industrial demand, following seven prior quarters of deep contractions.  While many of the underlying fundamental variables at best remained stable this quarter, several categories, including production and inventories, did trend downward.
  • Looking forward, virtually all of the demand drivers have trended down in sync with the faltering U.S. economy.  While the current conditions remain in the strong to normal categories, the direction and magnitude of the slowdown is troubling looking ahead to future quarters.  Strong demand growth isn’t expected until 2012, contingent upon the overall economy resuming GDP growth above 2.5 percent to 3 percent.
  • Therefore, demand for industrial space is projected to grow at an annualized rate of 1 percent in 3Q2011, which is at the lowest end of the normal range.  Increased rates of growth are expected to occur beginning toward the end of 2011 and into 2012, barring exogenous shocks.
“Demand is slowly returning to what’s considered a ‘normal range’, which gives our members and industrial real estate a bit of optimism moving forward,” said Thomas J. Bisacquino, NAIOP president and CEO, in a release. “Much of our continued success is dependent on growth in the GDP and the rebounding economy. As they return to more customary levels, demand for industrial real estate will ensue.”

This is the third forecast for industrial space demand, part of ongoing data and analysis by Dr. Randy Anderson, University of Central Florida, and Dr. Hany Guirguis, Manhattan College.

Click here to read the entire research report regarding the methodology of the forecast and to download an accompanying graphic.