Challenging Forecast

Last year marked a turning point for the economy and the national industrial sector, but the future looks even more challenging. CBRE Torto Wheaton Research’s Spring 2009 Industrial Forecast indicates that this global economic crisis will have a deeper impact on the national industrial sector than any recession since the late 1980s.The market experienced a total negative net absorption of 95 million square feet during 2008. With 168 million square feet of new space completed, the availability rate increased 190 basis points to 11.4 percent. The pace of deterioration does not match that of the 2000-01 recession, in which availability rates rose 320 basis points over a 12-month period, but this downturn just may surpass the previous two recessions in duration.Torto Wheaton estimates that the country is only halfway through this recession’s job losses: 3 million jobs lost over the past 13 months. Thus prospects for weak industrial demand growth could extend into 2010 before the economy and U.S. consumers get back on solid ground and start adding jobs and demanding imports again.Under these assumptions, an additional 200 million square feet of negative industrial net absorption could occur by year-end 2010, and the availability rate might reach 14 percent, surpass its previous peak of 11.7 percent, set in 2003. The depth of this drop in demand is unprecedented and, if realized, its effects will reach to all types of industrial markets.The worst offenders are the Midwest’s manufacturing-driven markets, as well as those whose expansion was strongly tied to the housing boom and consumer-driven import markets. Overall, about half of the 60 markets that Torto Wheaton covers will surpass their previous availability peak by year-end 2010.