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SAN FRANCISCO- Variations in trade account for 80% of the historical variation in US industrial real estate demand, say researchers from AMB Property Corp. According to the industrial REIT’s new research report The Long-Term Prospects for Global Trade and Industrial Real Estate Demand: An analysis of a trade-based investment strategy in the midst of global economic crisis, the dependence on trade ultimately provides underlying stability to the market. The report predicts the beginning of recovery in 2010.

“Our analysis indicates that, while the global economy is in the midst of a recession, the fundamental drivers of industrial real estate demand remain intact,” says AMB vice president, research David C. Twist. “The recent declines in global trade volumes and the net absorption of industrial real estate…represent a temporary pause in a strong, longstanding secular trend. Today’s interconnected, highly-efficient supply chains are not reversing in any meaningful way, and, on the margin, there are early signs that trade volumes may be stabilizing.”

According to AMB, growth in trade volume correlates strongly with both US and global GDP. Furthermore, it says trade growth as a multiple of GDP growth rate has more than doubled over the last 50 years. In the past decade alone, trade’s multiplier on GDP expanded to 3.5. As a result, nominal changes in GDP growth result in significant changes in trade growth, explaining why trade has fallen so precipitously over the past year, with forecasts predicting a 9% to 11% in global trade for ’09.

Nonetheless, AMB researchers say structural support for the trade-to-GDP and trade-to-industrial-real-estate demand relationship remains intact. “The global shift of labor, productivity and capital over many decades has created complex but efficient supply chains,” says Twist. “A fundamental shift back to domestic production is not feasible as it would take decades and require much added cost to implement.”

AMB attributes the current decline to four major factors: inflation fluctuations; financing problems; supply chain responsiveness; and miscounting of final products. But the report points out that most analysts forecast about 2% growth US and global GDP next year, a level of growth it calls consistent with about 500 million square feet of industrial real estate demand globally. Such a level of demand, says Twist, would mark the beginning of a healthy recovery.

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