The Expert: Bright Spots for 2009
- Dec 09, 2008
Faced with a global economic recession and evidence that it could deepen, the industrial property market is rife with uncertainty.Since the middle of September, visibility into the credit markets and the outlook for the global economy has deteriorated dramatically. Decisionmaking on many fronts has ceased, and the capital markets are essentially frozen. Recent capital injections by the Department of the Treasury, the Federal Reserve System and other central banks, however, give hope for eventual relief.Tenants are handling new space commitments with greater deliberation, making only time-critical decisions. National industrial absorption data remain negative, and industrial vacancy stands at 10.7 percent, reflecting softness in the industrial property market. The national and global economies are expected to deteriorate going into 2009.The brightest spots in the face of this adversity are those companies well positioned to accelerate out of the downturn, those that are focused on market fundamentals and that continue to execute on a strategy focused on the best locations.Additionally, today’s record lean inventories mean that even an incremental increase in demand will lead to new orders and increased production and therefore to increased absorption of industrial space. Lean inventories mean incremental demand will require new orders, production and absorption of industrial space. The downturn of the 1990s followed a technology boom and equity bubble that produced a buildup in inventories, and burning through these inventories over the years of recovery took considerable time. Today’s extraordinarily lean inventories, which represent a considerable difference from previous downturns, bode well for the industrial sector.The industrial sector can take heart from the fact that every downturn is cyclical, and therefore eventually ends. As an asset class, industrial has traditionally demonstrated the least volatility and offered the highest risk-adjusted returns, resulting in a strong long-term commitment from institutional investors. Additionally, as a result of the slowdown in the development pipeline owing to the credit crunch and to other increased barriers to entry, companies emerging from their bunkers with strong portfolios in 2009 will find an increased market share and numerous attractive opportunities to expand.