Industrial Construction Spending Forecast to Drop

SUGAR LAND, TX-Companies plan to spend 2.7% less on North American industrial project construction next year, according to Industrial Info Resources Inc. (IIR) The Sugar Land-based company forecasts the value of industrial project construction in 2010 will be $147.2 billion, compared to about $151 billion this year.

The forecast is derived by applying a confidence factor based on historical spending trends to the baseline project activity that IIR is currently tracking. As of October, IIR had identified 5,023 capital and maintenance projects in North America valued at $1 million scheduled to start construction in 2010. The total value is $431 billion. However, the company estimates only 34% will be built. According to IIR, industrial firms launched 6,080 new North American capital projects with a total value of $350.9 billion in ’09, but some 2,835 projects were placed on hold or canceled and another 3,633 were delayed and moved to next year or beyond.

While new construction is heading down, the company anticipates a slight increase in project spending for capital and maintenance projects next year. It forecasts US spending will rise to slightly more than $219 billion from about $217 billion in ’09, while Canadian project spending will rise to $81 billion from $77 billion this year.

According to Michael Bergen, IIR’s senior vice president of marketing and forecast products, there has been a sharp decline in industrial inventories since the beginning of the year. He says this could be a prelude to inventory restocking and increased near-term spending. He notes that both capacity utilization and new durable goods orders have increased, as has consumer confidence, suggesting manufacturers and producers may be preparing to expand. He also says the impact of the US government stimulus package should be more apparent next year than it was this year, prompting companies to initiate new capital and maintenance plans.

The impact of next year’s spending on industrial real estate is not clear-cut because IIR’s data base encompasses all sectors of the industrial economy. In addition to the manufacturing, warehousing and distribution products typically taken into account by real estate investors, the company tracks mining, energy and infrastructure projects.