Outlook for Industrial Companies: Better Luck in 2010
Experts predict a rough year ahead for industrial companies, but several see signs that the turnaround may start in 2010.
John Bell (Apr/May 09)
(page 2 of 2)
Predicting the Future
it comes to the industrial outlook for the rest of 2009 and into 2010,
crystal balls are not just cloudy, they're downright murky.
the manufacturing side, the outlook is "particularly troubling,"
according to Reilly. He cites the auto industry crisis as an example
and foresees no recovery until 2010: "The reason is, we can't point to
any positive indicators in 2009." Bach concurs. "Manufacturing has been
hard hit by the global recession, decline in imports and exports, and
the downturn of the auto industry," he says. Kelly says the outlook for
manufacturing growth is "gloomy." Moore points out that any turnaround
in manufacturing depends on a resumption of consumer spending; he
expects manufacturing to contract 3 to 7 percent in 2009 with no uptick
until fourth quarter at the earliest.
On the property side,
Moore says the market may surprise because it's relatively stable, with
much of it locally owned. Kelly advises that industrial property
responds quickly to the economy and will lead industrial sectors into
early recovery. Bach says that demand is "really down" and expects that
to continue through mid-2010. Reilly expects an increase in vacancy
rates in 2009, but says the bright spot is that new construction had
Alan Pontius, senior vice president and a
managing director of Marcus & Millichap, divides the industrial
property market into two segments - operational and investment. On the
operational side, he says, demand for industrial space has slowed
significantly in the wake of declines in consumer retail trade. He
expects industrial demand to decline for at least the first half of
2009. "There's hope for renewal with some level of pricing coming back,
but not before 2010," he says.
On the investment side, Pontius
believes investors are seeking core low-risk opportunities. "There's
still capital demand for quality and safety," he says. "Industrial is
not there yet, but when goods start to move, it will reflect a rebound
more rapidly." Many industry analysts believe that the property types
that will see the most demand when industrial companies do ramp up
production will be basic warehouses, mostly in the form of large
regional distribution centers.
Quinn says the industrial market
as a whole will improve because people will get back to business and
stop waiting for financial strings to loosen. "There's evidence now
that lenders are starting to stick their heads up out of the bunkers,"
he says. "People will be getting back to basic business principles. In
the past, it's been easy to get money by taking shortcuts. Now we need
to get back to doing things the right way and looking at each
investment on its merits."
A recessionary economy is replete
with a number of uncertainties for business, and industrial companies
are no exception. Moore brings up the question of what will happen to
the car companies: "That will have a huge impact on the whole
industrial market." Thomas Bisacquino, president of the National
Association of Industrial and Office Properties (NAIOP), says, "We're
in a global recession where consumerism is stopped. Capital and credit
are the number one problems."
Kelly puts it in the most basic terms: "The foremost concern is the necessity of surviving, how to make it through."