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CRE Finance World, Autumn 2012

Through A Sharper Lens: CRE Analysis Using Monthly Data Chart 8 data shows industrial production declining by 0.4% in May. Indices Industrial Effective Rent Growth that track truck tonnage declined in May and April. On the consumer side, retail sales have fallen three months in a row on a seasonally- adjusted basis. This trend could dampen demand for distribution center space if it persists. For the first time since mid-2009, the ISM Purchasing Managers’ Index fell below 50 last June, indicating contraction of manufacturing activity. Furthermore, the new orders portion of the Index exhibited a significantly larger decline, anticipating further weakness in the future. Several of the manufacturers surveyed cited diminished demand for U.S. exports from China and Europe as a key reason for the projected slowdown. Other economies are also showing signs of stumbling, potentially undermining demand for U.S. industrial space. Central banks in Europe, China, Japan and Brazil are all responding with looser monetary policy, given signs of dwindling growth. Leasing velocity for industrial properties may therefore slow accordingly in the latter half of the year. Updated monthly data should reveal whether there Source: Reis, Inc. is any hint of a slowdown. What is supporting the relatively consistent improvement of Monthly Trends Enrich Analysis fundamentals in industrial properties, when other sectors are not This article submits that examining monthly trends may yield useful doing as well (with the exception of multifamily)? First, industrial insights into different commercial property types. We may have fundamentals depend not just on domestic demand (like many begun to see evidence of a slowdown in vacancy improvements office and retail markets), but also global trade. Strong growth for multifamily properties. Office and retail fundamentals appear in US exports and the relatively quick recovery of global exports to be holding steady. While there are dark clouds on the horizon, and imports meant that warehouse and distribution centers were industrial rents and occupancies consistently improved at a relatively humming with activity where office and retail markets were not. healthy clip over the first seven months of the year. Second, trends like the rise of e-commerce delivered a boon to the demand for data centers and warehouse space — whereas online While existing research infrastructure is geared to analyze annual shopping acted as a bane to brick-and-mortar retail stores. or quarterly trends, scrutinizing monthly data offers another bow in the researcher’s quiver, in the constant search for better, more However, the outlook for economic growth for the latter half of relevant information to help guide key decisions. 2012 is not sanguine. Economic indicators that influence demand for industrial facilities are signaling a slowdown. Federal Reserve A publication of Autumn issue 2012 sponsored by CRE Finance World Autumn 2012 27


CRE Finance World, Autumn 2012
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