NAIOP Forecast: Industrial Space Demand (2Q12 Forecast)

Industrial Demand Expected to Grow at Normal Range

WASHINGTON, D.C. – The NAIOP Research Foundation today released the Industrial Space Demand Forecast, the sixth forecast from a model that analyzes important economic factors and net absorption data to predict future demand for industrial real estate.

According to the data:

  • The current annualized rate of growth (1Q2012) came in at 1.11 percent, which is in line with the 1.01 percent forecast. This rate is consistent with the readings during the past several quarters, which have ranged from .87-1.26 percent.
  • 1Q2012 growth was within normal range of 1-2 percent per year. The finding continues to be consistent with readings of the overall economy, which has seen GDP growth that is still positive but below long-term averages. Nevertheless, 1Q2012 marks the seventh consecutive quarter of positive growth in industrial demand, following seven prior quarters of deep contractions.
  • Looking forward (see Table 2), most of the demand drivers are in the normal category, somewhat in sync with the growth in the United States and world economies. Growth that deviates too much from long- term norms is not expected in the near future. Strong demand growth isn't expected until later in 2012, contingent upon the overall economy resuming more normalized growth and other risks, such as the continued issues in Europe.
  • Therefore, demand for industrial space is expected grow at an annualized rate of 1.14 percent in 2Q2012, which is at the low end of the normal range. Increasing rates of growth are expected to begin to occur by the second or third quarter of 2012, barring exogenous shocks.

"Demand for industrial is very much tied to the overall economy," said Thomas J. Bisacquino, NAIOP president and CEO. "Although still small, it's encouraging to see some positive growth in the industrial markets, it is evident that the industry won't return to more normal rates of growth until the U.S. and global economies stabilize."

Industrial Space Demand Forecast Data

The Industrial Space Demand Forecast is part of ongoing data and analysis by Dr. Randy Anderson, University of Central Florida, and Dr. Hany Guirguis, Manhattan College. To read a research report regarding the methodology of the forecast and to download an accompanying graphic,

Issued quarterly, the NAIOP Industrial Space Demand Forecast is based on Purchasing Manager Index (PMI) data provided by the Institute of Supply Management (ISM), Index of Manufacturing Output (IMO) data provided by the Federal Reserve, and net absorption data provided by CBRE Econometric Advisors.

The Industrial Space Demand Forecast was calculated using the data in the following tables:

Table 1 1Q2011 2Q2011 CurrentCondition Trend
PMI: Purchasing Managers Index 59.7 55.8 Strong Down
PMI - New Orders 61.9 53.6 Normal Down
PMI - Production 65.9 55.9 Strong Down
PMI - Employment 62.1 61 Hot Down
PMI - Deliveries 59.8 55.2 Strong Down
PMI - Inventory 49 53.5 Normal Up
3Q2011 4Q2011  
IMO: Index of Manufacturing Output  3.10% 3.70% Strong Up

Table 2 4Q2011 1Q2012 CurrentCondition Trend
PMI: Purchasing Managers Index 53.1 53.4 Normal Up
PMI - New Orders 51.1 54.5 Normal Up
PMI - Production 52.5 58.3 Strong Up
PMI - Employment 55.2 56.1 Strong Up
PMI - Deliveries 51.6 48 Weak Down
PMI - Inventory 52 50 Normal Down
4Q2011 1Q2012  
IMO: Index of Manufacturing Output  3.70% 4.60% Strong Up

Methodology for Industrial Space Demand Forecast Model

Drs. Anderson and Guirguis developed the forecasting model for the demand of industrial space at the national level. Utilizing variables that comprise the entire supply chain and lead the demand for space, the model is able to capture the majority of changes in demand.

While leading economic indicators have been able to forecast recessions and expansions, the indices used in this study are constructed to forecast industrial real estate demand expansions, peaks, declines and troughs. The Industrial Space Demand model was developed using the Kalman Filter approach, where the regression parameters are allowed to vary with time and thus are more appropriate for an unstable industrial real estate market.

This research initially examined nearly 40 real estate, economic and stock market variables that should theoretically be related to demand for industrial space. These variables included measures of employment, GDP, exports and imports, as well as air, rail and shipping data. Two variables, the Federal Reserve Board's Index of Manufacturing Output (IMO) and the PMI Index from the Institute for Supply Chain Management PMI (ISMPMI), capture the majority of the variation in demand and the entire supply chain.

The IMO is released monthly by the Federal Reserve Board of Governors. The index measures the quality of goods produced, excluding mining and utilities. The ISMPMI is constructed using a survey of purchasing managers' expectations. The Institute's monthly survey has five components: new orders, production, employment, deliveries and inventories. ISMPMI leads the IMO and is a leading indicator of production in the industrial sector, followed by the actual goods that are produced, which are portrayed and captured in the IMO data. The information leads firms in their decision making on how much industrial real estate they will demand.

To access a copy of the report, please contact David Harrison at 410-804-1728, or

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About the NAIOP Research Foundation: The NAIOP Research Foundation was established in 2000 as a 501(c)(3) organization to support the work of individuals and organizations engaged in real estate development, investment and operations. The Foundation’s core purpose is to provide these individuals and organizations with the highest level of research information on how real properties, especially office, industrial, retail and mixed-use properties, impact and benefit communities throughout North America. For more information on how to contribute or for complimentary research reports, visit

Kathryn Hamilton