05/11/2012 | by
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Industrial REITs appear to be gaining steam as the economic outlook gradually improves.

"Analysts sentiment appears to be up for industrial REITs," said Jason Lail, manager of the real estate research group at SNL Financial, in an interview with REIT.com. "Projected GDP growth, combined with steady consumer spending, could provide strong fundamentals for industrial REITs in 2012 and 2013."

Industrial REITs lost 5.16 percent last year, according to the FTSE NAREIT U.S. Real Estate Index Series, while equity REITs overall were up8.29 percent. Through May 10, the sector had a total return of 20.25 percent in 2012, compared to 13.88 percent for the FTSE NAREIT Equity REIT Total Returns Index.

One bright spot in the sector in 2011 was that occupancy improved. The average industrial occupancy rate improved from 88 percent at the end of 2010 to 93 percent at the end of 2011, according to SNL data.

The first three months of 2012 marked the seventh consecutive quarter of positive growth in industrial demand, according to NAIOP, a commercial real estate development association.

Demand for industrial space is expected to grow at an annualized rate of 1.14 percent in the second quarter of 2012, according to an NAIOP forecast released on May 10. The association is projecting more robust demand growth isn't expected until later in 2012.

"Demand for industrial is very much tied to the overall economy," said Thomas Bisacquino, NAIOP's president and CEO. "Although still small, it's encouraging to see some positive growth in the industrial markets."

Bisaquino said the industrial sector's first quarter growth of 1.11 percent was within the normal range of 1 percent to 2 percent per year. He said the growth was consistent with GDP growth despite being below long-term quarterly averages.

"It is evident that the industry won't return to more normal rates of growth until the U.S. and global economies stabilize," Bisaquino pointed out.

Looking beyond the United States, Lail said some industry leaders are expecting industrial demand to pick up globally. Part of that growth is expected to come from China, where the economy is showing signs of shifting from a focus on exports to one that better serves domestic consumption.