Magazine article Mortgage Banking

Industrial Property Sales, Absorption Up in Second Quarter

Magazine article Mortgage Banking

Industrial Property Sales, Absorption Up in Second Quarter

Article excerpt

The U.S. economy absorbed industrial space for the first time in 18 months during the second quarter as sales volume increased, according to Cassidy Turley, Washington, D.C.

Net demand for warehouse and flex space registered positive 6 million square feet--the largest gain since the first quarter of 2008. Second-quarter market leaders included Phoenix, Memphis, Louisville, Cincinnati and northern New Jersey, which all recorded more than 1 million square feet of positive demand.

However, despite greater demand, the report said the industrial market will remain lackluster for several quarters to come.

"Businesses are gearing up for a year of better demand," said Kevin Thorpe, chief economist at Cassidy Turley. "They are preparing for better demand related to consumer products, better demand for motor vehicles and parts, better demand for construction materials--but better demand should not to be confused with robust demand or even consistent demand. For perspective, following the 2001 recession, there were seven quarters of negative absorption before the market truly turned the corner."

The Institute for Supply Management (ISM) July Manufacturing Index reported a drop to 55.5 from 56.2 in June--the lowest number this year after it peaked at 60.4 in April.

The U.S. industrial property market inventory, however, grew by 8.7 million square feet during the first half of the year--80 percent below the historical annual average. Currently, 1.1 billion square feet of empty industrial space remain on the market and another 14 million square feet are under construction, Cassidy Turley said.

Recent setbacks in the U.S. economy created increased risks to recovery in the industrial sector, but the general trend remains upward, Cassidy Turley reported. Thorpe said Cassidy Turley's forecast for economic and industrial recovery remains "largely intact."

"Since closing the chapter on the second quarter, consumer confidence has fallen back, retail sales have slipped and employment indicators that correlate with demand for industrial space have weakened," Thorpe said. "None of this is surprising. Recovery periods are always bumpy and fraught with setbacks, but rarely do these setbacks result in a double-dip."

Optimism about the U.S. economy is down slightly from last quarter, with 45 percent of U.S. industrial manufacturers optimistic about the next 12 months, 43 percent uncertain and 12 percent pessimistic, according to New York-based PricewaterhouseCoopers LLP's (PwC's) second-quarter Manufacturing Barometer report. …

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