Manufacturing begins slow turnaround

January 01, 2004 |

Available manufacturing space inched up 0.1% to 11.7% in the third quarter of 2003, according to a CB Richard Ellis survey, but this is likely the peak vacancy rate as the manufacturing sector begins to rebound. Factory production has been stagnant for two years (actually negative if the adjustments to the factory production index for more content per semiconductor are ignored), but a turnaround is in the works. Although manufacturing is in recovery, it's been unusually weak because production continues to be outsourced to Asian countries, where labor and other expenses are less expensive. The manufacturing production index has been rising, albeit very slowly, since last May. Growth is expected to accelerate to a 5% pace in 2004.

This turnaround will be driven by the ongoing strong rise in business investment spending, a mini spring consumer spending boom fueled by the second phase of the 2003 tax cut and by expanding exports after three declining years. Credit more foreign sales to parallel economic recoveries in other countries and to the delayed impact of last years' steep dollar depreciation against the Euro, the Canadian dollar, and the Yen.

Economic recovery will cut the vacancy rate several points over the next few years, but manufacturing construction spending will regain only 10% of the decline from the prerecession peak this year. Another 25-30% in spending will be regained in 2005-06.

Vacancy rates currently range from 6-8% in diversified manufacturing centers, such as Long Island to over 15% in depressed technology centers such as Boston and Austin, Texas. In Los Angeles, the nation's largest manufacturing center, 8.8% of manufacturing space is available. The vacancy rate in the next four largest factory cities is 10.4% in Chicago, 18.5% in Dallas, 16.7% in Atlanta, and 9.6% in Detroit. Areas with the lowest vacancy rate include: Albuquerque, N.M. (5.5%), Long Island, N.Y. (6.3%), Denver (7.3%), Mid-New Jersey (7.6%), and Toledo, Ohio (8.4%).

The auto industry is adding considerable space as foreign assemblers and their suppliers expand production in the U.S. Apparel, furniture, appliances, and electronics are closing space and moving to China.

Overlay Init