NAIOP: NET ABSORPTION OF INDUSTRIAL SPACE TO REACH 150 MILLION SF IN 2013

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WASHINGTON, D.C.The U.S. industrial market is poised for significant growth with annual net absorption forecast to reach 150 million square feet in 2013 and 175 million square feet in 2014, according to the NAIOP Industrial Space Demand Forecast.

These levels of demand are 50 and 75 percent above the net absorption figure of roughly 100 million square feet notched in 2012. The reduced risk of a double-dip recession and stronger economic and job growth have given the industrial sector a boost, points out NAIOP (formerly known as the National Association of Industrial and Office Properties).

“Industrial has heated up,” says Dr. Randy Anderson of the University of Central Florida, one of the authors of the forecast. “The industrial segment will experience strong and continuous growth through the fourth quarter of 2014 due to clarity post-election and post-fiscal cliff, easing in the credit markets, and improvement in both consumer and business confidence.”??

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Many economists were jolted earlier this week, however, to learn that the U.S. economy contracted at an annualized rate of 0.1 percent in the fourth quarter of 2012, according to the federal government’s initial estimate. But as The Wall Street Journal reported, the surprise drop was driven by a sharp fall in government spending and by businesses putting fewer goods on warehouse shelves, as well as by a decline in exports. The silver lining in the report was that housing, consumer spending and business investment in equipment and software were stronger in the fourth quarter.

The predictive model for the industrial sector is funded by the NAIOP Research Foundation and was developed by Anderson and Dr. Hany Guirguis of Manhattan College.

The forecast is based on a process that involved testing more than 40 economic and real estate variables that theoretically relate to demand for industrial space, including varying measures of employment, gross domestic product, exports and imports, and air, rail and shipping data.

Leading indicators that factor heavily into the model include the Federal Reserve Board’s Index of Manufacturing Output (IMO), the Purchasing Managers Index (PMI) from the Institute of Supply Management (ISM), and net absorption data from CBRE Econometric Advisors.

In 2010, the NAIOP Research Foundation awarded a research grant to Anderson and Guirguis to develop a model for forecasting net absorption of industrial space in the United States.

A white paper describing the research and testing behind the model for NAIOP’s Industrial Space Demand Forecast is available on the NAIOP Research Foundation website: http://www.naiop.org/en/Research/Our-Research/Reports/Industrial-Space-Demand-Forecast.aspx

The absorption forecast tracks with CBRE data and may vary when compared with other data sets. Data includes warehouse, distribution, manufacturing, research and development, and special purpose facilities with a rentable building area of 10,000 or more square feet.

— Matt Valley

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