Economic Implications for the Industrial Sector

NAIOP members had a unique opportunity this week to gain expert insight and stay ahead of the competition with an exclusive NAIOP Advantage Series webinar: What’s Next for the Dynamic Industrial Market?

Dr. Josh Harris, director of the Dr. P. Phillips Institute for Research and Education in Real Estate at the University of Central Florida, began the webinar with a look at the latest NAIOP Industrial Space Demand Forecast. Harris pointed out the current model predicts approximately 60 million square feet quarterly net absorption through 2017, in line with the last few years. “The industrial market really is keeping pace with the economy and moving in a predictable fashion, and that’s a really good thing for the stability of the industry,” Harris said.

So what you should be considering for your businesses? What are the upside variances? In other words, “What will happen in the economy that will change our industrial forecast to the upside?” Harris posed. Among the possible variances, he named the GDP “breaking out” above 3 percent growth, the continued run up in stock prices signaling optimism, job growth that leads to wage growth and increased consumerism, business sector confidence leading to gains in fixed investments, and manufacturing sector rehires and expansion into the U.S.

Looking at the downside variances, Harris points to the possibility of inflation and an interest rate jump (which would hurt the consumer and housing market), a strong dollar that could disrupt exports and drag the GDP down, and the potential for the business sector to sour on Trump’s policies.

“All in all, upside looks more likely than downside,” Harris concluded, adding, “I would take this run of cards any day.”

Next came insights from well-known industry economist Dr. Mark Dotzour. His read on the U.S. economy now is that it’s the “strongest on earth,” continuing to create jobs, and the current labor shortage is contributing to wage increases, which, while positive, has the potential to lead to higher inflation, and higher inflation can lead to higher interest rates.

Dotzour identified key issues for 2017 in three categories: economic strength, fiscal policy and interest rates, and drilled down on specific trends and predictions for each. Dotzour sees a lot of energy left in the economy; he believes we’ll see the Federal Reserve raise interest rates at least once, if not more than once; Millennials will join the single-family housing market; tax reform and infrastructure are unlikely to happen; we’ll see slower apartment rent growth because of oversupply; among many other predictions.

At the close of the webinar, Dotzour and Harris addressed several attendee-submitted questions: “With tax reform and increases infrastructure spending not happening, will that cause a pullback in the economy since the expectation is that it will happen?” “In your estimation, what will be the cause of the next recession?” “Several of my clients are expecting an increase in refinancing of 2007 deals this year and are concerned about values being high enough to refinance. Do you see that happening in industrial or other sectors?” “Is it too late for speculative development, which may take 12-18 months for a new building to be completed, if this market might go into recession or fall flat in the next two years?” “With the strength of the economy that everybody is talking about, will this affect all asset types equally, or will it affect industrial at a higher level?” “What affects will the current administration’s isolationist/protectionist trade policies have on industrial real estate in the U.S. and globally?”

Hear Harris and Dotzour’s responses to these questions by viewing the archived version of the full webinar online.

The NAIOP Advantage Series is an exclusive member benefit, delivering expert insights into the latest research to help members make informed business decisions. Not a NAIOP member? Learn more about how NAIOP membership connects you with people, knowledge and education to help you stay ahead of the curve.

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