Plants and warehouses get a nice face lift

By BY DARYL DELANO, Delano Data Insights -- Modern Materials Handling, 11/1/2000

A remarkable turnaround for the industrial sector has occurred this year. According to the U.S. Commerce Department's official estimate of how much money is being spent on new construction and renovation/retrofit work, spending through August 2000 was running 8.4% ahead of the 1999 pace-and continuing to gain momentum with each succeeding month. With vacancy rates in some parts of the country at extraordinarily low levels, it's a safe bet that work on industrial warehouses and manufacturing plants will continue to expand well into 2001.

Fortunately for the industrial sector, the recent past did not turn out to be a prologue to the future. Last year, total construction spending plunged to nearly 14% below the none-too-impressive 1998 total. But the tide has certainly turned this year-although, in perspective, it's still far short of a tsunami.

New industrial building construction in August of this year was 20.1% above the dollar-value level of work on manufacturing and warehouse buildings seen in August 1999. During August 1999, total industrial construction spending was at a level 18.3% below the August 1998 total.

An increasing share of total industrial construction money is going toward building warehouses and the related supply chain infrastructure needed by new-economy firms. But these infrastructure investments are being made by traditional brick-and-mortar companies as well as by the pure dot coms. And there's still plenty of money being spent to increase manufacturing space, either with new buildings or significant retrofitting and renovating of existing-but outdated-production facilities.

Overall production capacity in the nation's manufacturing sector expanded by a healthy 4.3% between August 1999 and August 2000. The majority of U.S. industrial sectors have added to their productive capacity during the past year, with high-tech and new-economy manufacturers leading the way. The amount of manufacturing space available for semiconductor production was almost 44% greater this August than it was last August. Meanwhile, there was 48.5% growth in production capacity for computers and peripheral equipment-including storage units, disk drives, and printers.

The industrial sector should note that there's not a plethora of industrial space lying fallow in the nation these days, whether in the form of adaptable manufacturing space or open warehouses. The national availability rate for industrial space declined from 7.1% during the first quarter of 2000 to 6.7% in this year's April-June quarter-the lowest rate in more than 4 years. And the second-quarter 2000 industrial vacancy rate was 0.8 of a percentage point lower than during the same quarter in 1999.

Nevertheless, through the balance of 2000 and into at least the early months of next year, manufacturers and distributors of materials handling equipment and supplies should reap the rewards of this encouraging trend in industrial market activity.