Industrial Rebound Could Absorb 200 Million SF in 2011

Surging global trade and consumer demand are driving demand, said Colliers chief economist Ross Moore.

March 2, 2011
By Paul Rosta, Senior Editor

Courtesy Flickr Creative Commons user Tim Green aka atoach

If positive economic trends continue throughout 2011, absorption in the U.S. industrial market could hit 200 million square feet for the year, according to projections by Colliers International.

That total would represent a remarkable turnaround for the sector, which recorded 160.7 million square feet of negative absorption only two years ago. Colliers chief economist Ross Moore based the projections in part on a strong fourth quarter. The industrial market finished the year by absorbing 28.6 million square feet, according to Colliers’ analysis of the 55 biggest U.S. industrial markets. That strong finish more than offset the 5 million square feet of inventory that had returned to the market through September. Moore expects momentum to continue building, pushing absorption to as much as 50 million square feet per quarter in 2011.

Behind the uptick are multiple economic factors, including a surge in global trade, growing consumer spending and general economic improvement, Moore pointed out. And although it may be less of a force, he added, “Manufacturing is coming back with a vengeance.”  He is also monitoring some early but encouraging data suggesting that “small businesses are getting on the recovery bandwagon.” While their influence is sometimes overlooked, smaller and emerging companies can create a steady stream of demand for blocks of space in the range of 20,000 to 25,000 square feet, Moore explained.

Industrial markets to watch closely this year include Chicago, Dallas, Los Angeles/Long Beach and New Jersey—four of what Moore refers to as the “big five.” Those are integral links in the global supply chain. The fifth member of the club, Atlanta, is more problematical. The Southeastern powerhouse endured an undistinguished year in 2010, and it is difficult to determine whether Atlanta’s sluggish industrial performance stems from problems with its housing market, regional economic issues or other problems. Other promising industrial markets this year range from Memphis, Cincinnati and Kansas City to Phoenix and Seattle. Such locations often have special niches that give them what Moore describes as an important supporting role to the giant markets. Memphis, for example, is the main U.S. hub for UPS and FedEx.

Despite a generally upbeat outlook, Moore tempered the projections with several notes of caution. “If you look at occupied space, the industrial market did not shrink or contract as much as it should have” during the recession, he noted. End users that did not reduce their space may be sitting on excess capacity, and may be able to fill out that existing inventory rather than expanding into new space. Another as-yet unknown variable is whether the recession changed the economic lag time that affects demand in all categories of commercial real estate, he added.