Warehouse, light industrial boost manufacturing

Things are picking up for manufacturing in every region but the Midwest, with vacancy rates heading down and construction spending increasing rapidly. The national vacancy rate for manufacturing property fell to 11.0% in the fourth quarter of 2004 from 11.2% the previous quarter and 11.6% a year ago. Construction spending is expanding fast, increasing 16% in the final quarter of last year. A 20% plus growth pace is expected into 2007.

Vacancy rates are well below the national average in metropolitan New York and Los Angeles, near average in the Midwest, and well above average in high-tech industrial centers. Space has been absorbed in both New York and Los Angeles by warehouse and light industrial facilities that service the rapidly rising foreign trade that has been concentrated in these ports.

The Midwest is suffering from stagnant motor vehicle sales and a pause in the building boom for foreign vehicle assembly plants and associated auto parts plants. Although midwestern machinery and off-road vehicle industries are booming, little factory space has been added.

Manufacturing vacancy rates will continue to slip, probably dropping below 10% within a year. New space will be needed to accommodate the expected 5–6% expansion in factory output through next year. All industries will be expanding except textiles, apparel, tobacco, and motor vehicles. Growth is being driven by a strong, sustained nationwide economic recovery and a larger U.S. share of the world market as a result of the weaker dollar over the last two years.

Most of the positive currency impact data on world market share is still ahead for U.S. manufacturers. The adjustment takes several years. With the U.S. dollar likely to weaken further, the manufacturing sector will be buoyed by foreign trade for several more years.