“Whew, it’s another hot one.” As I wipe my brow and glance out my office window, I’m reminded that the local temperatures aren’t the only things that have been hot, hot, hot lately. Grubb & Ellis reported last week that leasing activity in North Texas industrial buildings has been on the rise—especially in the warehouse/distribution sector, which absorbed more than 5.2 million square feet of space during the first six months of the year.
This spurs the questions; will leasing activity continue to strengthen during the remainder of the year? Is the debt ceiling crisis really solved? Will we ever see a break from these triple-digit temps? While it’s anybody’s guess about the debt ceiling and the weather, we can look at some drivers of industrial demand for indications of what we can expect over the next several months.
Last week, the Federal Reserve Bank of Dallas released its July edition of the Texas Manufacturing Outlook Survey, which tracks more than a dozen indicators, including production, capacity utilization, new orders and company outlook. The Texas Industrial Production Index is one component of the survey and is a leading indicator for industrial space demand since businesses may require more space as production picks up. The Texas Industrial Production Index has been trending upward for the last 21 months and the outlook for the next six months is for an increase in industrial production. In contrast, the occupancy percentage in warehouse/distribution buildings has been trending upward only during the last nine months. (Click on chart for larger image.)
Given the upward trend in the Texas Industrial Production Index over the last couple of years, the Dallas-Fort Worth industrial market should continue to see moderate improvement through the remainder of the year. Let’s hope our temperatures improve, too!
Moody Younger is an executive managing director for Grubb & Ellis, overseeing the firm’s activities in Texas, Oklahoma, Arkansas, and northern Mexico. Contact him at [email protected]