Our outlook for 2009 calls for a year of flat or negative growth in industrial real estate markets. Without appearing too pessimistic, all leading economic indicators are pointing toward contraction and a “stay-the-course-and-survive” philosophy.
As 2007 ended, the negative reports were primarily tied to the housing market. A year later, the flu has spread to financial services and notably to retailers. Much of the response in the industrial real estate sector had been modeled with robust expansion through containerized retail import volume. Import numbers are off significantly from 2007. Consequently, the excess capacity created for new portside warehouses has experienced indigestion in markets throughout North America. Even the South Bay area of California has seen warehouse vacancy rates increase for the first time in a decade.
The two changes we expect to see are:
-- Excess capacity exists at the ports, in available warehouse space and in distribution capacity by shippers. 2009 will mark a significant slowdown in capacity investment and growth.
-- Currency-driven foreign investment in U.S. manufacturing will flatten as a result of weak demand domestically and worldwide. There may be some signs of hope here because of Asian-owned automotive and manufacturing projects. These will be overshadowed by a general slowdown.
In summary, 2009 will be a digestion of the past six years of port-related real estate expansion. Deep pockets will have to withstand a challenging year to position for modest recovery in 2010.