NAIOP Forecast: Industrial Space Demand (Q42010)

Industrial space demand growing - Demonstrates improving economy

WASHINGTON, D.C. – The NAIOP Research Foundation today released the Industrial Space Demand Forecast, a new study and model created for NAIOP that predicts future demand for industrial real estate by analyzing various economic factors and net absorption data.

According to the data:

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.

“Industrial property investors, lenders and forecasters have an explicit need for a concise measurement for industrial space demand, and this new forecast provides that data in a snap-shot format,” said Thomas J. Bisacquino, NAIOP president and CEO. “The upward trend demonstrates renewed confidence and increased activity in the industrial market, and the data provides valuable information for the developers and financiers to make better transaction decisions.”

The data and analysis are detailed in “Industrial Space Demand,” a report co-authored by Dr. Randy Anderson, University of Central Florida, and Dr. Hany Guirguis, Manhattan College, and funded by the NAIOP Research Foundation. To read the complete whitepaper regarding the methodology of the Forecast, visit the Research Foundation.

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.

Industrial Space Demand Forecast Data

The Industrial Space Demand Forecast was calculated using the data in the tables below for 4Q2010.

Table 1 4Q09 1Q10 Current Condition Trend
PMI: Purchasing Managers Index 54.9 59.6 Warm Up
PMI - New Orders 64.8 61.5   Hot  
PMI - Production 59.7 61.1  Hot  
PMI - Employment 50.2 55.1  Warm  
PMI - Deliveries 56.8 64.9  Hot  
PMI - Inventory 43 55.3   Warm  
   2Q10 3Q10     
IMO: Index of Manufacturing Output  7.7%  6.26%  Hot  Down

Table 2 3Q10  4Q10  Current Condition  Trend 
PMI: Purchasing Managers Index 54.4 57  Warm  Up 
PMI - New Orders 51.1  60.9 Hot Up 
PMI - Production  56.5  60.7 Hot  Up
PMI - Employment  56.5  55.7 Warm  Down
PMI - Deliveries  52.3  55.9 Warm Up
PMI - Inventory 55.6 51.8 Average Down
  3Q10  4Q10
IMO: Index of Manufacturing Output 6.26% 5.54% Warm      Down

To access the full report, please visit the NAIOP Research Foundation or contact Kathryn Hamilton at or at 703-904-7100.

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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