April 8th, 2016, By C&W Research
At Cushman & Wakefield, we strive to provide thoughtful and timely market information to help clients and colleagues make informed business decisions. We are proud to be first-to-market with this Q1 2016 industrial real estate data, and provide perspective on the remainder of 2016 based on economic trends.
Key opportunities and consideration for the industrial market include:
- The U.S. economy faces a series of global headwinds as China rebalances and transitions to a new economic model, lower oil and commodity prices strain commodity producers, and divergent monetary policy is creating imbalances in exchange rates and trade. Despite these global headwinds the U.S. economy and industrial markets continue to power forward.
- Leading industrial demand drivers indicate continued growth in the coming quarters. Headline GDP continues to grow, the labor markets are booming, consumer spending and inventories look solid, manufacturing is strengthening, and the stars seem to be aligning for housing.
- eCommerce remains a powerful engine as the fulfillment channel migration to support online commerce has emerged as a net new user supporting industrial fundamentals.
- The ISM manufacturing index enjoyed its first month of expanding activity in March since last year. This offers some indication that the worst of manufacturing slump may be over. Encouragingly, the jump in new orders suggests the pickup in current production should not give way in the near term.
- U.S. imports are forecast to continue expanding this year on the back of solid domestic demand and subdued import prices, reaching a new peak of 20.9 million TEUs. Meanwhile, exports are expected to see a modest rebound but not entirely enough to offset the past two year decline.
- There doesn’t seem to be much of anything that can disrupt the unprecedented boom taking place in the U.S. industrial sector. Consider what happened in the first quarter of 2016: we watched the Dow Jones plunge by as much as 10% at one point; the CBOE volatility index more than doubled; manufacturing contracted for several months in a row; global GDP weakened; U.S. corporate profits weakened; commodities fell; U.S. exports fell and the U.S. industrial sector was basically unphased, putting up another 50+ million square feet of absorption in the first quarter. Our forecast calls for 2016 to be another 200 msf+ growth year and considering all that transpired in the first quarter, we are well on our way.
- Vacancy rates nationally continued to decline and currently register 6.1% with vacancy rate falling across markets of all sizes. Strikingly, industrial vacancies for all product types are now lower than at any point in the last cycle.
- Industrial rents are soaring with rent growth occurring in all product types. In many markets across the country rents are either at their historic high or on their way.
- Construction is ramping up but remains well below what we observed at the peak of the last cycle and deliveries are well below prior cycle deliveries. Both the construction backlog and costs continue to rise.
Look for our full Industrial Quarterly report in the coming weeks.
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