This article, from Torto Wheaton Research paints an optimistic picture for the future demand for industrial space. Investors would be wise to observe the industrial markets in coming months in addition to closely following the apartment markets for buying opportunities.
December 24, 2008
RAY OF LIGHT: INDUSTRIAL’S LONGER-TERM PROSPECTS BY TORTO WHEATON RESEARCH
Laura Stone Mortimer, Senior Economist
The industrial market is currently feeling the effects of weak demand, which will continue through the near term as the U.S. and world economies continue to struggle. While the economic news of late is rather dour, the benefits of globalization and a more open economy are bright spots for longer-term growth in demand for industrial space.
TWR believes the long-term outlook holds a great deal of potential for industrial assets. The U.S. economy is becoming more open and globally integrated. As a consequence, trade – measured by the sum of imports and exports of goods – will continue to account for an increasing share of GDP. Is it anticipated that over the next ten years, many emerging markets in Asia and Europe will contribute to increases in global trade as their economies and currencies gain strength – much as China has done in the current decade.
The role the U.S. plays in world trade and the distribution of goods will be increasingly important. With the dollar’s recent weakening, our exports have become more attractive worldwide, creating greater demand for American-made goods. Historically, the U.S. consumer has demanded more foreign-made goods than foreign consumers have demanded American-made; this, however, is currently reversed, resulting in a more open economy. Over the long-term, export demand for U.S. goods and services is anticipated to continue to grow.
Given the increases in globalization and the long-term trend in trade that will represent a growing share of GDP over the next 10 years, it is entirely possible that growth in warehouse demand will outpace domestic economic output growth. As such, our demand forecasts are slightly more optimistic over the longer term once the economy enters its recovery phase. Trade growth, which up until 2004 represented less than 20% of GDP, has grown to represent about 30% of GDP in 2008.
At this pace, trade growth as a share of GDP could continue to grow to as much as 40% over the next decade. This will have a significant impact on the nation’s industrial markets – particularly those that serve as transshipment centers and those that are well-positioned, in terms of minimizing transportation costs and serving large areas of the population.
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