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Full-year data for the 2007 industrial market is not yet in, but some followers of the sector admit that the impact of the housing downturn took them aback. The impact on industrial, they say, was unexpected. That being said, many experts predict that sector will have a strong year and feel the least amount of impact from a weakened economy and credit-market woes. Ross Moore, senior vice president of market and economic research at Colliers spoke with GlobeSt.com about what to expect in the coming year.

GlobeSt.com: How will an economic downturn impact the sector over the coming year?

Moore: If you look at history, it shows us that the industrial market does move largely in sync with the general economy. It’s less sensitive to job growth. It’s more a reflection of what’s going on with the economy and economic activity. That’s typically the way it goes.

What this year has taught me is that industrial is more tied in with the housing market than I gave it credit for. That’s my excuse for getting our 2007 forecast wrong. We were largely right. Where we were off was on the demand side. If you ask why we were off, I’d have to say it was housing. I’ve got a list of 10 indicators that I look at that I believe significantly influence the industrial market, and housing is on there. We track a multitude of housing data.

What we didn’t fully realize is that housing, furnishings, home improvement, landscaping and appliances, everything tied in. It was significant. Now when I’m looking at 2008, I’m certainly more cognizant of how that could impact industrial.

GlobeSt.com: How will industrial fare compared to other sectors?

Moore: You’ve got a pretty good battle going on here. It’s the domestic economy versus the global economy, specifically exports. Our view is that exports are going to be huge this year and will be a key source of growth. The question is, on the domestic side, how weak will it get? What impact will that have on domestic consumption?

There is absolutely no way that exports can compensate for a full on recession. But if the slowdown is restricted or mostly centered around housing, then industrial can do OK. If you ask me to compare industrial to retail and office, I think everybody’s going to feel it. Retail is the one I’m most nervous about, and office is going to be a little better insulated. What we have to watch there is how much fallout we’re going to see in financial services. I’m still positive on industrial. I think it’s going to surprise on the upside. Mind you, I think my expectations have come down somewhat as have everyone’s expectations.

What concerns me a little bit more about industrial compared to the other property types is that we’ve got more construction going on that office or retail. I don’t want to say that we have a tsunami of construction, but we’ve got a sufficient amount to drive the vacancy rate up. That’s something we have been forecasting for the last two or three quarters. We’ve probably seen the low point, and the vacancy rate will start creeping up.

GlobeSt.com: If there is a problem with retail, will that have a big impact on warehouses?

Moore: Absolutely. If you’re stocking the shelves less often because you’re selling less, then you’re going to have less demand for warehouse space. You’re not going to be opening new warehouses if you’re seeing your sales on decline. That will be part of the equation. I would say that I think it will be less so this time around, and that just ties back to how much more efficient retailers are. They’re not storing stuff like they used to. Just because the machine is more efficient, you’re not going to see those huge swings. But compared to past cycles I think we’ll fell it quicker. From a researcher’s perspective, what’s struck me about the last five years is that everything happens so much faster.

GlobeSt.com: Will any other industries have a large impact on the sector?

Moore: I think we need to look at what’s going on with energy. If we have a significant spike in fuel prices, it is going to change the matrix. One of the trends that we’ve seen over the last couple of years is fewer distribution hubs but larger distribution hubs. I wonder whether that model starts to break down if fuel prices really do spike. All of a sudden you’re driving 1,000 miles, and it used to make sense. Now it makes way more sense to have a second distribution hub. I wonder whether you may see companies say they’re going to open more facilities because you’ve got high fuel prices because it’s not economical to serve a very large geographical area.

GlobeSt.com: How do you see the port situation shaping up over the next year?

Moore: You are going to see more and more products coming in on the East Coast. You’re not reading about the bottleneck in Long Beach that we were hearing about, but that problem hasn’t gone away. These guys are looking at alternative ports, whether it’s down in Mexico or the Pacific Northwest, or down in Panama and places like Jacksonville and Savannah. That’s a fairly well-established trend. If the US economy does slow down, you are going to see some considerable slack created. But that’s going to be a temporary phenomenon. I think that the macro or medium-term trend is very much still in place. Exports and the markets that have benefited – it’s hard to picture a reversal in those trends any time soon.

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