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The embattled industrial market finds itself under multiple attacks from slowing trade and production, rising gas prices, space consolidation and the like. With all these factors working against it, we asked our audience last week in our GlobeSt.com Quick Poll, how the industrial market will do. The votes came in with a perfect 50-50 split decision as to whether or not it will rebound with the rest of the economy or it will take longer to bounce back. We turned to Jay Cornforth, managing director of the East Region at AMB Property Corp. to place a tie-breaking vote.

“It will take longer, as historically industrial real estate vacancies start falling about three or four quarters after GDP growth turns positive. That said, [AMB Property] believe this recovery will be a little quicker since vacancies and new supply were at relative healthy levels heading into the downturn.”

“Our current snapshot of the market remains very challenging on the operating front with continued downward pressure on rents. This downward trend is moderating and we expect to hit bottom by year-end. The national vacancy rate has increased to 13% due to continued negative absorption of space. So, there is much work to be done including the back-filling of existing space before occupancy or rents can grow in a meaningful way. We believe we could be as far as a year way from that point.”

“Longer-term, industrial real estate demand is on solid footing. Major drivers of global demand for industrial real estate in order of importance are: global trade, global GDP, industrial production, business inventories and consumption. Global trade is the most important number to watch as it explains roughly 80% of the historical variation in demand. Data shows that for every 1% of GDP growth, global trade grows by 3.5%, which translates into increased demand for industrial real estate in the US.”

“According to current projections from the World Bank and Global Insight, global trade in 2010 is expected to grow by 4%-6%. Another important driver to watch is the rebuilding of inventories which fell to historic lows. In fact, they fell 13% compared to consumption which fell by only 2%. Business inventories have fallen faster than sales and at some point in the very near future you will see a rebuilding process that will directly benefit demand for industrial real estate.”

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