Manufacturing gains have commercial real estate companies confident about industrial sector

Increases in housing starts has spurred both industrial production and demand for warehouse space.

While the outlook was already mildly positive for the industrial sector, the rise in durable goods orders boosted manufacturing data above forecasts and bolstered the value of industrial commercial listings.

Bloomberg reported a rise in the Markit Economics preliminary index of U.S. manufacturing in July, increasing from a final reading of 51.9 in June to 53.2 this month, surpassing economists' expectations by almost a full point. This reinforces data reflecting increased industrial activity, specifically in the Philadelphia and New York regions, which both posted significant gains. According to Federal Reserve data released earlier this month, U.S. industrial output rose by 0.3 percent – its biggest gain since February – matching the median forecasts of industrial production made by economists. 

"Housing is definitely moving forward, manufacturing is picking up a little more momentum, and we're not on a path of deflation," said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. "I see this as a sign of some strength as we ended the second quarter."

A Markit Index reading of 50 or above indicates expansion and is based on replies from 85 to 90 percent of responses from American manufacturer purchasing managers from more than 600 companies.

Market indicators improve
According to the CoStar Group, gains in the leading indicators for the industrial sector reveal that gradual growth will occur throughout the remainder of 2013, specifically in the areas of production, housing starts, freight movement and consumption.

Despite weak income growth, pent-up demand for durable goods has helped propel consumption 12.1 percent higher than average levels recorded throughout 2005 and 2007 – peak years. Industrial production has also exceeded peak levels by 1.1 percent, possibly fueled by the migration of consumer purchases to online platforms. While this trend tempers retail growth, it increases demand for industrial production. Amazon.com expanded its distribution presence in North America by 8.5 million square feet just last year. 

Port traffic and housing starts, while still below their pre-recession levels, have posted positive gains as well. Reaching an annualized rate of 900,000, housing starts increased by 13.1 percent in the past year. Port traffic in Los Angeles was up 1.3 percent in a year-over-year comparison, inching up truck tonnage 8.3 percent above its pre-recession levels. Ultimately, these improvements directly influence small bay warehouse demand and shoring up fundamentals for industrial assets.

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