Construction spending stalls, with turnaround expected during 1999
By Daryl Delano -- Modern Materials Handling, 11/1/1998
Industrial construction spending has been weak for several years now. The government's calculation of the value of manufacturing buildings and warehouses under construction shows no signs of improvement in the near future.Spending estimates compiled by the U.S. Commerce Department show that the total value of new industrial space completed during July 1998 was at an annualized level of $28.5 billion, 12.9% below the July 1997 level. During 22 of the past 30 months for which construction spending data are available, industrial building completions have been trending below the values for the same months a year earlier. Total dollars spent declined 3.4% through the first seven months of 1998 when compared to the same timeframe last year.
Vacancy rate information available from the commercial brokerage/real estate information firm of CB Commercial shows evidence of modest overcapacity in the U.S. industrial sector. During June of this year, 4.6% of industrial space (in buildings over 100,000 sq ft) nationwide was vacant. Double-digit vacancy rates exist in a number of geographic areas (see table).
The increasing national vacancy rate for industrial space suggests that many markets are having difficulty absorbing even the reduced amount of new space that is becoming available. Consequently, we are forecasting that the total value of new industrial and warehouse space completed nationwide this year will decline by another 6.0% from the disappointing total of 1997. We expect to see some improvement during 1999, but probably not enough to show significant gains in the spending rate.
The manufacturing sector of the U.S. economy has faced increasing global competition because of the fallout from faltering economic growth in much of the world, particularly in the Asia/ Pacific region. The result has been a worldwide overcapacity in industrial space, especially in commodity markets. Encouragingly, however, there is reason to believe that after several years of diminishing levels of spending, industrial construction spending will begin to recover next year.
Industrial vacancy rates for selected major metropolitan areas
(Percent of total industrial space over 100,000 square feet available for rent)
Mar. '98 Jun. '98
National average 8.3 8.6
Atlanta 12.1 11.8
Boston n/a 13.2
Chicago 6.8 7.4
Dallas 10.3 11.5
Detroit 4.0 5.6
Houston 8.0 8.5
Los Angeles 9.0 8.6
Miami 9.6 6.7
Minneapolis 9.8 8.2
No. New Jersey 8.5 8.5
Philadelphia 7.7 8.0
Phoenix 7.6 8.1
Source: CB Commercial
N/A=Not available
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