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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.

Apr/May 09
(page 2 of 2)
Predicting the Future
When it comes to the industrial outlook for the rest of 2009 and into 2010, crystal balls are not just cloudy, they're downright murky.

On 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 virtually stopped.

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."   

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