Industrial construction spending growth stalls temporarily
By Daryl Delano -- Modern Materials Handling, 5/1/1998
Industrial construction spending, the government's accounting for the value of manufacturing buildings and warehouses under construction, weakened dramatically during the final months of 1997.Information from the U.S. Federal Reserve Board, meanwhile, shows that total manufacturing sector production capacity grew by 5.3% between January 1997 and January of this year. There is reason for concern that this is too much new manufacturing capacity for the slowing U.S. economy to absorb, particularly in light of the growing overcapacity in competitive Asian markets.
Industrial vacancy rate information available from the commercial brokerage/real estate information firm of CB Commercial continues to show a reasonably healthy market for industrial buildings. During December of last year, 8.4% of industrial space nationwide (in buildings over 100,000 sq. ft.) was vacant.
Double-digit vacancy rates still exist in a growing number of markets, however. Metropolitan areas as diverse as Atlanta, Dallas, and most suburban New York City locations recorded vacancy rates in excess of 10% during the month of December. At the same time, exceptionally tight markets for manufacturing and warehouse space existed in Detroit and Cincinnati.
Last year's industrial construction spending total was more than 5% lower than 1995's $32.5 billion peak. The spending level for the final quarter of 1997 was at its lowest annualized rate since the third quarter of 1994.
The increasing national vacancy rate for industrial space suggests that many markets are having difficulty absorbing even the reduced amount of newly available space. Consequently, we are forecasting that the total value of new industrial space completed nationwide this year will be slightly below last year's total, and that 1999 will show only modest improvement. Nevertheless, the dollar value of new construction we are seeing represents good, albeit selective, market opportunities in the materials handling industry.
Industrial vacancy rates for selected major metropolitan areas
(Percent of total industrial space over 100,000 square feet available for rent)
Sep. '97 Dec. '97
National Average 8.2 8.4
Atlanta 11.0 11.3
Boston 6.0 5.5
Chicago 8.0 7.9
Dallas 11.0 10.3
Detroit 4.3 3.8
Houston 5.1 7.4
Los Angeles 8.7 9.2
Miami 8.5 10.3
Minneapolis 7.8 9.9
No. New Jersey 10.3 9.6
Philadelphia 7.1 7.3
Phoenix 7.4 7.8
Source: CB Commercial
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