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Despite Challenges, Vital Industry Poised for Continued Expansion
By Jim Dieter, SIOR executive vice president, Industrial Brokerage, U.S. Cushman & Wakefield, Inc.
Just as manufacturing is a major driver of the U.S. economy, its impact on the national industrial real estate landscape is highly significant. According to the ISM Report, domestic manufacturing output has grown for 23 straight months. The fact that this vital industry has shown expansion without disruption under intense economic pressure for nearly two years is nothing short of impressive.
Much of the manufacturing uptick in the U.S. hinges on economic growth globally. For example, the economies of China, India, Brazil and other Latin American countries are expanding notably, driving demand for the production goods related to transportation and infrastructure equipment, as well as automobiles and appliances. As such, our manufacturing exports have increased month over month.
As this demand has spurred stepped-up production, inventories have again grown. This is a great advantage to industrial real estate, for which the end result is positive space absorption and lower vacancy rates. Simply put, all the parts we are manufacturing to meet global needs must be warehoused and distributed. Other sectors are benefiting as well. The trucking, rail and shipping industries, which take products from Point A to Point B, have seen their traffic skyrocket.
Yet manufacturing faces a number of challenges. This already high-cost industry is facing a notable – and worrisome – rise in the pricing of raw materials, including plastic, aluminum, steel and copper. Additionally, for obvious reasons during the down cycle, manufacturers had cut back in labor and capital investments. The retooling process takes time, and many companies are scrambling to meet the rapid increase as well.
They also recognize that reinvestment in manufacturing operations is still a risky proposition. With so many continued uncertainties in the general economy, they face a true “Catch 22.” They must take a leap of faith to stay ahead of the curve, but they also know quite well that the progress we have made could reverse virtually overnight.
The good news loops back to the fact that a large percentage of U.S. manufacturing ties to global performance. The expectation of continued expansion of key economies elsewhere provides reason for confidence that domestic manufacturing will remain strong. This, in turn, will continue to benefit our economy and strengthen our industry.